bank run

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pages: 549 words: 147,112

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

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

In just three days, customers pulled out a collective $1.5 billion, surpassing IndyMac’s giant deposit loss. “We had never seen anything like it,” said one of the deposit team managers later. WaMu’s own bank run was now, officially, under way. On the fourth day, a Tuesday, customers withdrew $1.8 billion. Together those two numbers represented about 2 percent of WaMu’s retail deposit base of $148.2 billion.* The last time WaMu had suffered through a bank run of this magnitude was in midst of the Great Depression.23 On a cold February morning in the winter of 1931, Seattle residents woke up to a banner headline in the local paper: the troubled Puget Sound Savings and Loan Association would not open the next day.

To keep from further spooking customers, WaMu held off on closing about a hundred branches across the country that hadn’t been making money, and that had been scheduled to close before the run started. No one wanted to give the public any reason to think WaMu was shutting down. On the Tuesday when WaMu customers withdrew $1.8 billion, the bank run peaked. Then it began to subside. Bank runs, while they are sparked by unknown events, generally play out like a bubble, with a run-up, a climax, and a fall. WaMu’s run was no different. Soon deposit outflows fell back into the range of hundreds of millions of dollars. Two weeks after IndyMac’s failure, the WaMu panic ended.

WaMu had called the meeting as a way to update the regulators on the bank’s financial condition following the bank run. They had no idea that their bank had fueled such a battle between the two agencies. In Reich’s conference room at the OTS’s frayed headquarters, Killinger and WaMu’s treasurer, Robert Williams, ran through WaMu’s capital and liquidity positions. WaMu was considered well capitalized, even though it had just posted a stunning $3.3 billion loss in the second quarter because of its bad loans—its highest quarterly loss ever. As a result of the bank run, the bank’s liquidity had drained to about $50 billion. The government agencies still deemed that amount healthy.


pages: 491 words: 131,769

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

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

The first was available during the Great Depression, but the Federal Reserve failed to use it effectively; the second came into being when New Deal banking legislation created the Federal Deposit Insurance Corporation (FDIC). These two antidotes to bank runs are slightly different. Lender-of-last-resort support stops a bank run by giving banks ready access to cash so they can pay off their depositors, thus sparing them having to liquidate assets at fire-sale prices. Deposit insurance, by contrast, prevents bank runs from occurring in the first place: it reassures depositors that they will get their money back if the bank becomes illiquid or even insolvent. In the postwar era, both lender-of-last-resort support and deposit insurance became the norm, not only in the United States but in most capitalist nations.

Building & Loan, but they suffered from the same vulnerability to a bank run. This would not have been a problem had the shadow banks made the same bargain as regular banks, submitting to increased regulation in exchange for access to lender-of-last-resort support and the equivalent of deposit insurance. But they did not. Even worse, these institutions grew to rival the conventional banking system, lending comparable amounts of money. It’s little wonder that the shadow banking system was at the heart of what would become the mother of all bank runs. A World Awash in Cash All of these factors—financial innovation, failures of corporate governance, easy monetary policy, failures of government, and the shadow banking system—contributed to the onset of the crisis.

As the run continued, fears mounted that other well-regulated banks with deposit insurance might suffer runs as well, then spiral from illiquidity to insolvency. As irrational as these bank runs may have seemed, depositors actually did have reason to worry. Like Countrywide, Northern Rock offered deposit insurance only up to a certain point: $100,000 in the case of Countrywide, and £30,000 in the case of Northern Rock. Plenty of depositors had sums well in excess of these amounts, and should the bank become insolvent—with or without the support of a lender of last resort—they would lose their savings. In fact, in the United States in 2007, some 40 percent of conventional deposits were uninsured. Bank runs, in other words, were rather rational.


pages: 199 words: 64,272

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

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

Today, when everybody with money in the bank comes and asks for it at the same time, we call it a bank run. And the banks and the people who want their money back—which is to say, basically, everybody—are still screwed. While paper money was new to Europe, banking and bank runs were not. In Venice, money changers had started storing gold for people in the fourteenth century—and lending that gold out to other people. The money changers sat on benches on a busy bridge over the Grand Canal, so they were called banchieri, which translates as “bench-sitters,” and which is the root of our words banker and bank. To reduce the risk of bank runs, the Venetians required the bench-sitters to keep a certain percentage of gold in reserve.

A boxing promoter at Madison Square Garden bartered tickets for “hats, shoes, cigars, combs, soap, chisels, kettles, sacks of potatoes, and foot balm.” The most famous line Roosevelt delivered the day he was inaugurated was perhaps the perfect response to the biggest bank run in American history: “The only thing we have to fear is fear itself.” In the middle of a gargantuan bank run—the canonical self-fulfilling prophecy—fear itself is the essential problem. Warren got in to see Roosevelt at the White House at 10:30 p.m. the next night. A few hours later, sitting in his study, smoking a cigarette in an ivory holder, in his second act as president, Roosevelt signed a proclamation that temporarily closed every bank in America.

And the depositors in the shadow banks—the corporate treasurers and money-market funds and pension funds that had trillions of dollars of cash—were starting to demand their money back. It was the start of the biggest bank run in history. The run hit Bear Stearns first. Bear was a small, risk-loving investment bank that borrowed tons of money from money-market funds and used it to buy mortgage-backed bonds. In March 2008, the funds decided the risk of lending to Bear was no longer worth it. Fidelity, the biggest money-market fund manager in America, had been lending Bear nearly $10 billion. In a single week, they demanded every penny of it back. This is the moment in the bank run when all the depositors line up outside the bank to withdraw their money.


Global Governance and Financial Crises by Meghnad Desai, Yahia Said

Asian financial crisis, bank run, banking crisis, Bretton Woods, business cycle, capital controls, central bank independence, corporate governance, creative destruction, credit crunch, crony capitalism, currency peg, deglobalization, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, floating exchange rates, frictionless, frictionless market, German hyperinflation, information asymmetry, Japanese asset price bubble, knowledge economy, liberal capitalism, liberal world order, Long Term Capital Management, low interest rates, market bubble, Meghnad Desai, Mexican peso crisis / tequila crisis, moral hazard, Nick Leeson, Nixon triggered the end of the Bretton Woods system, oil shock, open economy, Post-Keynesian economics, price mechanism, price stability, Real Time Gross Settlement, rent-seeking, short selling, special drawing rights, structural adjustment programs, Tobin tax, transaction costs, Washington Consensus

First, because a bank run exhausts the bank’s assets at date 1, a late consumer who waits until date 2 to withdraw will be left with nothing, so whenever there is a bank run, it will involve all the late consumers and not just some of them. Second, if the market for the risky asset is illiquid, the sale of the representative bank’s holding of the risky asset will drive down the price, thus making it harder to meet the depositors’ demands. The all-or-nothing character of bank runs is, of course, familiar from the work of Diamond and Dybvig (1983). The difference is that in the present model bank runs are not “sunspot” phenomena: they occur only when there is no other equilibrium outcome possible.

The total illiquidity of the risky asset plays an important equilibrating role in this version of the model. Because the risky asset cannot be liquidated at date 1, there is always something left to pay the late withdrawers at date 2. For this reason, bank runs are typically partial, that is, they involve only a fraction of the late consumers, unlike the Diamond–Dybvig (1983) model in which a bank run involves all the late consumers. As long as there is a positive value of the risky asset RX 0, there must be a positive fraction 1 ␣(R) 0 of late consumers who wait until the last period to withdraw. Otherwise the consumption of the late withdrawers c22(R)RX/(1␣(R)) would be infinite.

The graphs in this figure represent the equilibrium consumption levels of early and late consumers, respectively, as a function of the risky asset return R. For high values of R (i.e. R R*), there is no possibility of a bank run. The consumption of early consumers is fixed by the standard deposit contract at c1(R) c and the consumption of late consumers is given by the budget constraint c2(R) L RX c. For lower values of R(R R*), it is impossible to pay the early consumers the fixed amount c promised by the standard deposit contract without violating the late consumers’ incentive constraint and a bank run inevitably ensues. However, there cannot be a partial run. The terms of the standard deposit contract require the bank to liquidate all of its assets at the second date if it cannot pay c to every depositor who demands it.


pages: 726 words: 172,988

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

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

Problems arise, however, if many depositors demand their money at the same time. This could happen if depositors become worried about the bank’s solvency and try to get their money out before it is too late. As we know from the fate of the Bailey Building and Loan Association in the movie, this can give rise to a bank run. Bank runs are sometimes discussed as examples of self-fulfilling expectations; that is, events that become reality just because people expect them and act on the basis of these expectations. If investors fear that other investors are about to run and withdraw their money from the bank, it may make sense for them to run themselves and try to withdraw their money.

See mortgage default Delaware, bankruptcy in, 247n19 deleveraging, through asset sales, 64, 175, 257n19, 306n30 demand deposits: availability of, as benefit to economy, 49, 148; in balance sheets, 48, 248n4; in bank runs, 51–52, 150–53; as form of money, 294n10; in payment system, 49. See also deposit(s) Demirguç-Kunt, Asli, 251n24, 315n74 Demyanyk, Yuliya, 254nn43–44, 297n33 De Nicolò, Gianni, 249n12 Denmark, costs of bailouts in, 292n39 deposit(s): in balance sheets, 48–49; bank loans funded by, 48–49, 51–52; banknotes and, 149–50; in bank runs, 51–52; beneficial to economy, in payment system, 49, 148, 152–53; versus cash, 153, 154, 294n10; cost of, for banks, 111; as form of money, 150, 293n10; as funding sources of banks, 48–49, 51–52, 111, 150, 278n21; insurance on (See deposit insurance); in liquidity transformation, 155–56, 250n17; in maturity transformation, 51; as money-like debt, 154–56; in savings and loans institutions, 248n2; in solvency risks from maturity transformation, 51; as unique service of banks, 148; and vulnerability to runs, 150–53 deposit insurance: creditors protected by, 62, 163; in Europe, 242n25; as explicit guarantee, 129, 136–37, 139; functions of, 62; money market funds as lacking, 67, 93, 309n47; premium charged for, 111, 136–37; runs in absence of, 93, 273n46; in United States (See Federal Deposit Insurance Corporation; Federal Savings and Loan Insurance Corporation) Depository Institutions Deregulation and Monetary Control Act (DIDMCA) of 1980 (U.S.), 251n28 deregulation: and concentration in financial sector, 89, 269n27; of interest rates, 54, 251n28; of mergers, 251n28; in savings and loan crisis of 1980s, 55, 252n35; of savings banks, 54–55, 94, 251n28 derivatives, 69–74; accounting rules for treatment of, 71, 85–86, 260n42, 266n11, 266n13; in bankruptcy, exceptions for, 164, 227, 236n35, 301n55, 336n57; clearinghouses for, 334n46; complexity of, 71–72; credit insurance as, 73–74; definition of, 69; forward contracts as, 69–70; gambling with, 70–71, 73, 123; history of, 70; in LTCM crisis of 1998, 72; netting of, 85–86, 267nn15–17; regulatory capture and, 204; rise of, 70; risks from, 70–73; scandals involving, 70–71, 328n6; transparency in, lack of, 71–72, 261n43; transparency in, proposal to increase, 204, 325n51; types of, 69–70, 260n37.

After the collapse in 1878 of the City of Glasgow Bank, in which depositors did not lose anything but 80 percent of the shareholders were personally bankrupted, the trend toward limiting bank owners’ liability accelerated. Still, well into the twentieth century, banks’ shareholders frequently had extended liability that required them to cover losses beyond the amount of their original investment.23 Extended liability was ineffective in preventing bank runs and losses to depositors during the Great Depression because of many personal bank-ruptcies.24 Following that experience, the United States established explicit deposit insurance by creating the Federal Deposit Insurance Corporation (FDIC). Banks that are FDIC members pay a premium, and their deposits are then guaranteed by the FDIC up to a maximum amount, currently $250,000.


pages: 267 words: 71,123

End This Depression Now! by Paul Krugman

airline deregulation, Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, bond market vigilante , Bretton Woods, business cycle, capital asset pricing model, Carmen Reinhart, centre right, correlation does not imply causation, credit crunch, Credit Default Swap, currency manipulation / currency intervention, debt deflation, Eugene Fama: efficient market hypothesis, financial deregulation, financial innovation, Financial Instability Hypothesis, full employment, German hyperinflation, Glass-Steagall Act, Gordon Gekko, high-speed rail, Hyman Minsky, income inequality, inflation targeting, invisible hand, it is difficult to get a man to understand something, when his salary depends on his not understanding it, It's morning again in America, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", Joseph Schumpeter, junk bonds, Kenneth Rogoff, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, low interest rates, low skilled workers, Mark Zuckerberg, Minsky moment, Money creation, money market fund, moral hazard, mortgage debt, negative equity, paradox of thrift, Paul Samuelson, price stability, quantitative easing, rent-seeking, Robert Gordon, Ronald Reagan, Savings and loan crisis, Upton Sinclair, We are all Keynesians now, We are the 99%, working poor, Works Progress Administration

So banking carries with it, as an inevitable feature, the possibility of bank runs—sudden losses of confidence that cause panics, which end up becoming self-fulfilling prophecies. Furthermore, bank runs can be contagious, both because panic may spread to other banks and because one bank’s fire sales, by driving down the value of other banks’ assets, can push those other banks into the same kind of financial distress. As some readers may already have noticed, there’s a clear family resemblance between the logic of bank runs—­especially contagious bank runs—and that of the Minsky moment, in which everyone simultaneously tries to pay down debt.

The main difference is that high levels of debt and leverage in the economy as a whole, making a Minsky moment possible, happen only occasionally, whereas banks are normally leveraged enough that a sudden loss of confidence can become a self-fulfilling prophecy. The possibility of bank runs is more or less inherent in the nature of banking. Before the 1930s there were two main answers to the problem of bank runs. First, banks themselves tried to seem as solid as possible, both through appearances—that’s why bank buildings were so often massive marble structures—and by actually being very cautious. In the nineteenth century banks often had “capital ratios” of 20 or 25 percent—that is, the value of their deposits was only 75 or 80 percent of the value of their assets.

On one side, Glass-Steagall established the Federal Deposit Insurance Corporation (FDIC), which guaranteed (and still guarantees) depositors against loss if their bank should happen to fail. If you’ve ever seen the movie It’s a Wonderful Life, which features a run on Jimmy Stewart’s bank, you might be interested to know that the scene is completely anachronistic: by the time the supposed bank run takes place, that is, just after World War II, deposits were already insured, and old-fashioned bank runs were things of the past. On the other side, Glass-Steagall limited the amount of risk banks could take. This was especially necessary given the establishment of deposit insurance, which could have created enormous “moral hazard.” That is, it could have created a situation in which bankers could raise lots of money, no questions asked—hey, it’s all government-insured—then put that money into high-risk, high-stakes investments, figuring that it was heads they win, tails taxpayers lose.


pages: 475 words: 155,554

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

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

Staff worked through the night to ensure that bank branches across Greece had sufficient notes to meet depositor demand, and so contain any incipient physical bank run. Incredibly, this operation proceeded without anyone noticing. The Bank of Greece tracked a demand for paper currency through bank branch orders for currency. Large withdrawals were normally granted with notice of a day or two. The Bank also noticed a spike in purchases of gold sovereigns. It did not have to deploy teams of ‘bank-run spotters’ as the Bank of England had done in the crisis of 2008. As far as ordinary Greeks were concerned, the cash machines continued to function.

I wondered if the Eurogroup geniuses who had set the Cypriot bank run in motion had ever read Roosevelt’s ‘fireside chat’, delivered on the radio in similar circumstances exactly eighty years previously: ‘It needs no prophet to tell you that when the people find that they can get their money – that they can get it when they want it for all legitimate purposes – the phantom of fear will soon be laid.’ Thus, in a statesmanlike way, Roosevelt used the broadcast media to boost confidence and douse the flames of financial panic. Sadly, no statesman of similar stature emerged in Europe during the Eurozone crisis. In 1933 Roosevelt stopped bank runs by creating deposit insurance.

Soon there would be not enough euro notes in the country to cope with the number of Greeks trying to get their hands on their money from cash machines and bank branches. A secret plan was activated. A senior official overseeing Greece’s bailout told me that when it became known that the IMF were considering not paying out the final tranche, there was the beginning of a bank run. ‘We’re talking about June 2011,’ he told me, ‘when Greeks were taking about one to two billion euros a day from the banking system. And the Greeks had to send military planes to Italy to get banknotes. It got to that point.’ A decade after it gave up the drachma, the world’s oldest existing currency, Greece faced the crushing reality that it did not have the sovereign authority to meet the demand for paper currency from its own citizens.


pages: 611 words: 130,419

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

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

Consider a narrative-based chronology of the 2007–9 world financial crisis, which taps into stories about nineteenth-century bank runs that were virtually synonymous with financial crises. After the Great Depression, bank runs were thought to be cured. The Northern Rock bank run in 2007, the first UK bank run since 1866, brought back the old narratives of panicked depositors and angry crowds outside closed banks. The story led to an international skittishness, to the Washington Mutual (WaMu) bank run a year later in the United States, and to the Reserve Prime Fund run a few days after that in 2008. These events then led to the very unconventional US government guarantee of US money market funds for a year.

The answer was “general prosperity,” referring to McKinley’s words during the campaign. The joke faded in 1897 around a year after the election; it lost its effect when the economy began showing signs of improvement.13 Narratives Trigger the 1893 Bank Runs The 1893–99 depression in the United States started quite suddenly in the spring of 1893 with a string of bank runs. Depositors rushed to pull their money out of banks, thereby fueling the bank failures that they feared. But what triggered the bank run? One trigger was a rumor that began on April 17, 1893: the US subtreasury offices would no longer redeem Treasury notes in gold but would provide only silver, in amounts worth about half as much as the notes.

Days after his inauguration in 1933, he took the unusual step of addressing the nation by radio during a massive national bank run that had necessitated shutting down all the banks. In this “fireside chat,” he explained the banking crisis and asked people not to continue their demands on banks. He spoke to the nation as a military commander would speak to his troops before a battle, asking for their courage and selflessness. Roosevelt asserted, “You people must have faith. You must not be stampeded by rumors or guesses. Let us unite in banishing fear.”25 The public honored Roosevelt’s personal request. The bank run ended, and money flowed into, not out of, the banks when they reopened.


pages: 310 words: 90,817

Paper Money Collapse: The Folly of Elastic Money and the Coming Monetary Breakdown by Detlev S. Schlichter

bank run, banks create money, British Empire, business cycle, capital controls, Carmen Reinhart, central bank independence, currency peg, fixed income, Fractional reserve banking, German hyperinflation, global reserve currency, inflation targeting, Kenneth Rogoff, Kickstarter, Long Term Capital Management, low interest rates, market clearing, Martin Wolf, means of production, Money creation, money market fund, moral hazard, mortgage debt, open economy, Ponzi scheme, price discovery process, price mechanism, price stability, pushing on a string, quantitative easing, reserve currency, rising living standards, risk tolerance, savings glut, the market place, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, We are all Keynesians now, Y2K

The only constraining factor is the overall level of reserves and the risk of a bank run. If too many people ask to exchange their fiduciary media for money proper, any bank will face the risk of running out of reserves. Naturally, this risk increases if the bank is perceived to be in trouble, maybe as a result of problems in its loan portfolio. Once the soundness of a bank is questioned, outflows are likely to accelerate. In a fractional-reserve banking system, and that means today practically every banking system, every bank is potentially at risk of a bank run. A paper money system and a fractional-reserve banking system are confidence-based.

They can increase borrowing and therefore overall levels of debt. Today extensive measures have been taken and an elaborate regulatory infrastructure has been erected to reduce the risk of bank runs and to increase the confidence of the public in the soundness of the fractional-reserve banking industry. More importantly, the abandonment of a metallic standard and the adoption of a full paper money system have removed the inelasticity of bank reserves. When banks run low on reserves and face increased outflows (naturally redemptions are no longer in gold but in physical paper money or in the form of transfers to other banks), they can get new reserves from the central bank, which has a lender-of-last-resort function and, under a paper money standard, can create as much reserve money as it wishes “at essentially no cost” (Bernanke).

In the 10 years to the start of the most recent crisis in 2007, bank balance sheets in the United States more than doubled, from $4.7 trillion to $10.2 trillion.3 The Fed’s M2 measure of total money supply rose over the same period from less than $4 trillion to more than $7 trillion.4 From 1996 to 2006, total mortgage debt outstanding in the United States almost tripled, from $4.8 trillion to $13.5 trillion,5 as house prices appreciated, in inflation-adjusted terms, three times faster as over the preceding 100 years.6 Why I Wrote This Book It seems undeniable that elastic money has not brought greater stability. Regarding the stability of money’s purchasing power, the historical record of paper money systems has always been exceptionally poor. But it is now becoming increasingly obvious that the global conversion to paper money has also failed to put an end to bank runs, financial crises, and economic depressions. Quite to the contrary, those crises appear to become more frequent and more severe the longer we use fully elastic money and the more the supply of immaterial money expands. Astonishingly, there is an established body of economic theory that explains with great clarity and precision why this must be the case: the Currency School of the British Classical economists and, in particular, the Austrian School of Economics.


pages: 454 words: 134,482

Money Free and Unfree by George A. Selgin

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

As we’ve seen, Fed sources routinely overlook the role that misguided regulations played in causing or at least aggravating pre-Fed crises, blaming them instead on random outbreaks of unwarranted fear. “Occasionally,” the Dallas Fed says (FRBD 2006: 8), the public feared that banks would not or could not honor the promise to redeem [their] notes, which led to bank runs. Believing that a particular bank’s ability to pay was questionable, a large number of people in a single day would demand to have their banknotes exchanged for gold or silver. These bank runs created fear that often spread, causing runs on other banks and general financial panic. . . . Financial panics such as these occurred frequently during the 1800s and early 1900s. In his opening George Washington University lecture, Ben Bernanke (2012a) likewise speaks of panic spreading, like a cold, from one bank to the rest.

In his opening George Washington University lecture, Ben Bernanke (2012a) likewise speaks of panic spreading, like a cold, from one bank to the rest. “[I]f one bank is having problems,” he says, people “might begin to worry about problems in their bank. And so, a bank run can lead to widespread bank runs or a banking panic, more broadly.” To illustrate the point, Bernanke refers to the run on Jimmy Stewart’s (that is, George Bailey’s) perfectly solvent bank in It’s a Wonderful Life. Had the Federal Reserve been on the job, he says, Bailey wouldn’t have had to depend on the generosity of the good citizens of Bedford Falls.15 But the sort of financial panic that Bernanke’s “Frank Capra” theory describes happens only on TV (where, admittedly, it happens with alarming regularity, every December).

Only if panic becomes general—if depositors lose confidence in the entire banking system—will depositors switch to holding high-powered money, weakening all depository institutions in the process.8 Thus, a crucial (though often implicit) assumption in the pro-lender-of-last-resort literature is, to quote Robert Solow (1982: 238), that “any bank failure diminishes confidence in the whole system,” leaving no private banks in a position to stem a panic. This is a very strong assumption, especially in view of the paucity of support one finds for it in history. In U.S. experience, Arthur Rolnick and Warren Weber (1986) found no evidence of any contagion effects from bank runs during the free-banking era (1837–60). Reviewing the national banking era (1863–1913), George Kaufman (1988: 16) found only limited evidence of contagions in the panics of 1878, 1893, and 1908; and the evidence is weak except for 1893. Even during the “Great Contraction” of 1930–33—the episode from which contemporary authorities still seem to draw all of their conclusions—contagion effects appear to have been limited regionally until late 1932; prior to 1932, moreover, runs were confined for the most part to banks suffering from prerun insolvency or to banks affiliated with insolvent firms (Wicker 1980).


pages: 329 words: 99,504

Easy Money: Cryptocurrency, Casino Capitalism, and the Golden Age of Fraud by Ben McKenzie, Jacob Silverman

algorithmic trading, asset allocation, bank run, barriers to entry, Ben McKenzie, Bernie Madoff, Big Tech, bitcoin, Bitcoin "FTX", blockchain, capital controls, citizen journalism, cognitive dissonance, collateralized debt obligation, COVID-19, Credit Default Swap, credit default swaps / collateralized debt obligations, cross-border payments, cryptocurrency, data science, distributed ledger, Dogecoin, Donald Trump, effective altruism, Elon Musk, en.wikipedia.org, Ethereum, ethereum blockchain, experimental economics, financial deregulation, financial engineering, financial innovation, Flash crash, Glass-Steagall Act, high net worth, housing crisis, information asymmetry, initial coin offering, Jacob Silverman, Jane Street, low interest rates, Lyft, margin call, meme stock, money market fund, money: store of value / unit of account / medium of exchange, Network effects, offshore financial centre, operational security, payday loans, Peter Thiel, Ponzi scheme, Potemkin village, prediction markets, proprietary trading, pushing on a string, QR code, quantitative easing, race to the bottom, ransomware, regulatory arbitrage, reserve currency, risk tolerance, Robert Shiller, Robinhood: mobile stock trading app, Ross Ulbricht, Sam Bankman-Fried, Satoshi Nakamoto, Saturday Night Live, short selling, short squeeze, Silicon Valley, Skype, smart contracts, Steve Bannon, systems thinking, TikTok, too big to fail, transaction costs, tulip mania, uber lyft, underbanked, vertical integration, zero-sum game

With leverage, rigidity, and complexity galore, all crypto needed to set itself on fire was a match—a bank run. As you’ll recall, a bank run can occur in a regulated marketplace, but the existence of a trusted third party backstopping said banks is a mitigating factor. Since the FDIC was created in the 1930s, not a penny of FDIC-insured money in licensed US banks has been lost. But again, the lack of a trusted third party is the entire idea of crypto, so when the proverbial shit hits the proverbial fan there is no off switch to make the fan stop spinning. As my toddler might say, poopie go everywhere. The causes of the 2022 crypto bank run—or bank runs, if we’re being more accurate—are still highly contested, but they may not matter.

The bank’s financial position is in fact healthy and hedged against such a possibility, but these rumors gather steam, and an economic narrative forms that the bank itself may become insolvent. As more and more depositors attempt to take their money out, a bank run ensues, resulting in its financial collapse. The economic event, a drought, didn’t directly produce the bank run—the bank was healthy. It was the rapid spread of a distorted economic narrative that led to its downfall. Narrative Economics was published in 2019, prior to both the current viral spread of cryptocurrency and the COVID-19 pandemic. Given that, it is remarkable to observe how intertwined these two viruses would become in the following years.

Slightly adjusting for the layman what Professor Allen describes so well in her paper, there are three broad similarities between the systemic weaknesses revealed in the subprime crisis and the current construction of the crypto markets: leverage, rigidity, and complexity. They make the system very fragile, so that if a bank run occurs, it can trigger a crash. Leverage + Rigidity + Complexity + Bank Run = Crash Leverage is pretty simple: You borrow money to buy something. The more you borrow in relation to your actual money (equity), the more the upside, but there’s also the downside. If what you are investing in (or gambling on) goes up in value, you can make a lot of money.


pages: 464 words: 139,088

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

Alan Greenspan, Andrei Shleifer, Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, behavioural economics, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Monday: stock market crash in 1987, Black Swan, Boeing 747, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, classic study, collapse of Lehman Brothers, creative destruction, Credit Default Swap, crowdsourcing, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Doha Development Round, Edmond Halley, Fall of the Berlin Wall, falling living standards, fiat currency, financial engineering, financial innovation, financial intermediation, floating exchange rates, foreign exchange controls, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, German hyperinflation, Glass-Steagall Act, Great Leap Forward, Hyman Minsky, inflation targeting, invisible hand, Japanese asset price bubble, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, labour market flexibility, large denomination, lateral thinking, liquidity trap, Long Term Capital Management, low interest rates, manufacturing employment, market clearing, Martin Wolf, Mexican peso crisis / tequila crisis, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Nick Leeson, no-fly zone, North Sea oil, Northern Rock, oil shale / tar sands, oil shock, open economy, paradox of thrift, Paul Samuelson, Ponzi scheme, price mechanism, price stability, proprietary trading, purchasing power parity, quantitative easing, rent-seeking, reserve currency, Richard Thaler, rising living standards, Robert Shiller, Robert Solow, Satoshi Nakamoto, savings glut, secular stagnation, seigniorage, stem cell, Steve Jobs, The Great Moderation, the payments system, The Rise and Fall of American Growth, Thomas Malthus, too big to fail, transaction costs, Tyler Cowen: Great Stagnation, yield curve, Yom Kippur War, zero-sum game

First, banks might suspend withdrawal of deposits in the face of a potential bank run. Banks could just shut their doors for a few days until the crisis has subsided. Of course, for a bank to close its doors, even if only because of a temporary shortage of liquidity, would send a signal that might lead to a loss of confidence on the part of depositors. It might only encourage a run to start sooner than would otherwise be the case, and if suspensions were regarded as potentially likely, then bank deposits would no longer function effectively as money. Second, governments could guarantee bank deposits to remove the incentive to join a bank run. Deposit insurance is now a common feature of most advanced economies’ banking systems.

When the western banking system teetered on the verge of collapse, only drastic intervention, including partial nationalisation, saved it from going over the edge. The potential catastrophe of a collapse finally provoked action to recapitalise the banking system, using public money if necessary; the UK was first to respond, followed by the United States and then continental Europe. That action ended the bank run. The problem was that governments ended up guaranteeing all private creditors of the banks, imposing on future taxpayers a burden of unknown magnitude. Between the autumn of 2008 and the summer of 2009, there was a collapse of confidence and output around the world. World trade fell more rapidly than during the Great Depression of the 1930s.

As Macheath pointed out in Brecht’s Threepenny Opera, why rob a bank and risk imprisonment when you could start a bank and create money? Both robbers and founders are attracted to banks because that is usually where the money is. But in September 2008 the money wasn’t there. Banks were losing money hand over fist as people who had been willing to lend them large sums suddenly refused to make new loans. Unlike the frequent bank runs in the nineteenth century, when individual depositors occasionally panicked and withdrew their funds, the change of heart had come from other financial institutions, wholesale investors such as money market and hedge funds. Unable to replace these sources of funding, banks had to call in loans, sell assets, and, in some cases, seek funding from their central bank.


pages: 424 words: 121,425

How the Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy by Mehrsa Baradaran

access to a mobile phone, affirmative action, Alan Greenspan, asset-backed security, bank run, banking crisis, banks create money, barriers to entry, Bear Stearns, British Empire, call centre, Capital in the Twenty-First Century by Thomas Piketty, cashless society, credit crunch, David Graeber, disintermediation, disruptive innovation, diversification, failed state, fiat currency, financial innovation, financial intermediation, Glass-Steagall Act, Goldman Sachs: Vampire Squid, housing crisis, income inequality, Internet Archive, invisible hand, junk bonds, Kickstarter, low interest rates, M-Pesa, McMansion, Michael Milken, microcredit, mobile money, Money creation, moral hazard, mortgage debt, new economy, Own Your Own Home, Paul Volcker talking about ATMs, payday loans, peer-to-peer lending, price discrimination, profit maximization, profit motive, quantitative easing, race to the bottom, rent-seeking, Ronald Reagan, Ronald Reagan: Tear down this wall, Savings and loan crisis, savings glut, subprime mortgage crisis, the built environment, the payments system, too big to fail, trade route, transaction costs, unbanked and underbanked, underbanked, union organizing, W. E. B. Du Bois, white flight, working poor

“The mechanic or day laborer who would have a feeling of timidity about entering a big banking house to deposit a small share of his earnings, would gladly avail himself of an opportunity to make the deposit with the local post-master, for the reason that he feels that he has as much right to be there as any other man, for the post-office is a part of the Governmental structure he helps support, and he reckons justly that he is entitled to share in its benefits.”39 The second purpose of general reform was also present from the beginning. Creswell reasoned that the postal banks would cure the bank runs that were endemic to the banking system in the nineteenth century: “The financial difficulties in which the country has been … involved … have demonstrated the necessity for some means of maintaining confidence in times of threatened disaster, and of gathering and wisely employing the immense wealth scattered among the people, to prevent panic and escape the ruin which inevitably follows in its track.”40 Indeed, many bank runs occurred between 1880 and 1910, afflicting both national and state banks and causing nationwide distrust.41 A government-supported bank would go a long way toward infusing trust back into the system.

Even though total deposits didn’t rise during this time, most of the bank failures happened in those midregions, where the deposits did rise the most. When more banks started to fail nationwide, postal savings increased correspondingly. 115. Ibid., 718. 116. Ibid., 710. 117. David Hu, “The Influence of the U.S. Postal Savings System on Bank Runs,” Yale Journal of Economics 2, iss. 1 (2013), accessed March 12, 2015, econjournal.sites.yale.edu/articles/2/influence-us-postal-savings-system-bank-runs. 118. Sissman, “Development of the Postal,” 710. 119. United States Post Office, Annual Report of the Postmaster General, 1935 (Washington, DC: Government Printing Office, 1935), 28. 120. United States Post Office, Annual Report of the Postmaster General, 1941 (Washington, DC: Government Printing Office, 1941), 35. 121.

A bank only keeps a small reserve to pay out the occasional depositor. This is how banking works but only when people trust banks and allow them to hold on to their money. The only historically proven antidote to fear-induced runs is a government willing to insure bank deposits. Since the inception of deposit insurance, bank runs have been a rare historical phenomenon—so rare that you and I are willing to put all our money in a bank and forget about it. We don’t worry about who manages the bank or what they do with our money. Even if we hear on the news that our bank has started to lend large sums of money to piano-playing cats, which we think is a bad idea, we would not feel the need to show up at the bank the next morning to ask for all of our money back.


pages: 387 words: 119,244

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

Alan Greenspan, asset-backed security, bank run, Basel III, Bear Stearns, beat the dealer, Big bang: deregulation of the City of London, Bletchley Park, call centre, central bank independence, computer age, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, deindustrialization, deskilling, Edward Thorp, Etonian, Eugene Fama: efficient market hypothesis, eurozone crisis, falling living standards, financial deregulation, financial engineering, financial innovation, G4S, Glass-Steagall Act, high net worth, interest rate swap, invisible hand, joint-stock company, Kickstarter, light touch regulation, London Whale, Long Term Capital Management, long term incentive plan, low interest rates, moral hazard, negative equity, Neil Kinnock, Nick Leeson, North Sea oil, Northern Rock, old-boy network, pets.com, proprietary trading, Red Clydeside, shareholder value, The Wealth of Nations by Adam Smith, too big to fail, upwardly mobile, value at risk, warehouse robotics

Simon & Schuster UK Ltd 1st Floor 222 Gray’s Inn Road London WC1X 8HB www.simonandschuster.co.uk Simon & Schuster Australia, Sydney Simon & Schuster India, New Delhi A CIP catalogue record for this book is available from the British Library ISBN: 978-1-47111-354-3 eBook ISBN: 978-1-47111-356-7 Typeset in the UK by M Rules Printed and bound by CPI Group (UK) Ltd, Croydon, CR0 4YY For Fiona Contents Prologue 1 Tuesday, 7 October 2008 2 Company of Scotland 3 New World 4 Paisley Pattern 5 Battle of the Banks 6 The End of Boom and Bust 7 Fred the Shred 8 Sir Fred 9 Canny Scottish Bankers 10 Safe as Houses 11 Light Touch 12 Double Dutch 13 Bank Run 14 Boom Goes Bust 15 Five Years On Afterword Sources and Acknowledgements Notes Index List of Illustrations Prologue ‘You have a long time to regret it if you don’t get it right.’ Fred Goodwin, 7 June 2004, Businessweek During the boom years, at the beginning of the century, the Royal Bank of Scotland chose an advertising slogan.

Rivalry between the pair had been a significant factor when both charged ahead in 2007 trying to buy the sub-prime-riddled Dutch bank ABN Amro, a race which Goodwin won with disastrous consequences. Now, on the call, Varley and the others turn on Goodwin and start pushing. It is RBS that is the issue; you are the biggest problem. Another old rival is in trouble and is in the middle of being taken over after experiencing its own bank run. Andy Hornby’s crippled HBOS, which contains the old Bank of Scotland, RBS’s Edinburgh rival for almost three centuries, is being bought by the hitherto cautious and conservative Lloyds, run by Eric Daniels. ‘Fred hated the HBOS guys,’ says a friend. ‘He really enjoyed when they had to be taken over by Lloyds and were humiliated.

Rival outfits opened in Dundee, Ayr, Aberdeen and Perth and banks such as the Bank of Scotland started to develop national networks of branches – another innovation well ahead of England. There were more periodic panics, as there usually are. In 1857 the Western Bank in Glasgow failed spectacularly in the middle of a bank-run. It went down with liabilities of almost £9m. Its shareholders were wiped out. In 1878 there was an even worse disaster when the City of Glasgow Bank folded, following its botched investment in the Racine and Mississippi railroad in America. A difficult situation was exacerbated by extensive fraud on the part of the bank’s management.


pages: 526 words: 144,019

A First-Class Catastrophe: The Road to Black Monday, the Worst Day in Wall Street History by Diana B. Henriques

Alan Greenspan, asset allocation, bank run, banking crisis, Bear Stearns, behavioural economics, Bernie Madoff, Black Monday: stock market crash in 1987, break the buck, buttonwood tree, buy and hold, buy low sell high, call centre, Carl Icahn, centralized clearinghouse, computerized trading, Cornelius Vanderbilt, corporate governance, corporate raider, Credit Default Swap, cuban missile crisis, Dennis Tito, Edward Thorp, Elliott wave, financial deregulation, financial engineering, financial innovation, Flash crash, friendly fire, Glass-Steagall Act, index arbitrage, index fund, intangible asset, interest rate swap, It's morning again in America, junk bonds, laissez-faire capitalism, locking in a profit, Long Term Capital Management, margin call, Michael Milken, money market fund, Myron Scholes, plutocrats, Ponzi scheme, pre–internet, price stability, proprietary trading, quantitative trading / quantitative finance, random walk, Ronald Reagan, Savings and loan crisis, short selling, Silicon Valley, stock buybacks, The Chicago School, The Myth of the Rational Market, the payments system, tulip mania, uptick rule, Vanguard fund, web of trust

PART THREE CONTAGION 12 MERGERS AND MUTATIONS The frantic and fragile rescue of Continental Illinois early in the summer of 1984 had shown bank regulators just how quickly a crisis could erupt and how tough it was to stop one once it got rolling. However, the regulators who coped with that crisis at least recognized what they were dealing with: a bank run, albeit an especially fast and persistent one. Bank runs were a familiar species of trouble that had been around for about as long as there had been banks. But when Jerry Corrigan looked at the rest of the financial landscape from his post as president of the Federal Reserve Bank of Minneapolis, he saw new hazards that regulators had never dealt with before, things that could blow up without warning almost anywhere in the financial system.

By the following Wednesday, long lines were forming outside other thrifts insured by the private insurance fund, even though they had no exposure to the failed firm in Florida. News coverage about the bank runs was starting to attract notice far outside Ohio. That’s why the thrift executives had flown to Washington that morning and gathered in Volcker’s office. The towering central banker had done everything he could to show his concern, but the tools Volcker had available were limited. He could extend emergency loans to help with the bank runs, but what these thrifts really needed was federal deposit insurance, and the Fed didn’t sell that—the thrifts had to get it from the FSLIC.

In 2008, a run on money market funds—triggered by the Lehman bankruptcy, which caused a giant money market fund to lose money on Lehman’s commercial paper—nearly disabled the commercial paper market. Several had already had to jack up the rates they paid: Robert A. Bennett, “$4.5 Billion Credit for Chicago Bank Set by 16 Others,” New York Times, May 15, 1984, p. 1. the mighty Federal Reserve also stood ready to lend: Carlson and Rose, “Can a Bank Run Be Stopped?” p. 3. the worst bank runs that would occur in the aftermath of the 2008 financial crisis: Ibid., p. 1. Carlson and Rose note that “Washington Mutual lost 10 percent of its deposits and IndyMac lost about 8 percent, each in about two weeks. Thus, even in a more digital, seemingly faster moving era, these runs were less dramatic than the one on Continental, while still severe enough to lead to the seizure of both institutions by the FDIC.”


pages: 571 words: 106,255

The Bitcoin Standard: The Decentralized Alternative to Central Banking by Saifedean Ammous

"World Economic Forum" Davos, Airbnb, Alan Greenspan, altcoin, bank run, banks create money, bitcoin, Black Swan, blockchain, Bretton Woods, British Empire, business cycle, capital controls, central bank independence, Charles Babbage, conceptual framework, creative destruction, cryptocurrency, currency manipulation / currency intervention, currency peg, delayed gratification, disintermediation, distributed ledger, Elisha Otis, Ethereum, ethereum blockchain, fiat currency, fixed income, floating exchange rates, Fractional reserve banking, full employment, George Gilder, Glass-Steagall Act, global reserve currency, high net worth, initial coin offering, invention of the telegraph, Isaac Newton, iterative process, jimmy wales, Joseph Schumpeter, low interest rates, market bubble, market clearing, means of production, military-industrial complex, Money creation, money: store of value / unit of account / medium of exchange, moral hazard, Network effects, Paul Samuelson, peer-to-peer, Peter Thiel, price mechanism, price stability, profit motive, QR code, quantum cryptography, ransomware, reserve currency, Richard Feynman, risk tolerance, Satoshi Nakamoto, scientific management, secular stagnation, smart contracts, special drawing rights, Stanford marshmallow experiment, The Nature of the Firm, the payments system, too big to fail, transaction costs, Walter Mischel, We are all Keynesians now, zero-sum game

The central contention of the book is that recessions are the result of the government not responding quickly enough to a financial crisis, bank run, and deflationary collapse by increasing the money supply to re‐inflate the banking sector. It is typical of the Milton Friedman band of libertarianism in that it blames the government for an economic problem, but the flawed reasoning leads to suggesting even more government intervention as the solution. The glaring error in the book is that the authors never once discuss what causes these financial crises, bank runs, and deflationary collapses of the money supply. As we saw from the discussion of the Austrian business cycle theory, the only cause of an economy‐wide recession is the inflation of the money supply in the first place.

Unsound money allows the possibility of mismatching maturity, of which fractional reserve banking is but a subset, and this leaves banks always liable to a liquidity crisis, or a bank run. Maturity mismatching, or fractional reserve banking as a special case of it, is always liable to a liquidity crisis if lenders and depositors were to demand their deposits at the same time. The only way to make maturity mismatching safe is with the presence of a lender of last resort standing ready to lend to banks in case of a bank run.26 In a society with sound money, a central bank would have to tax everyone not involved in the bank in order to bail out the bank.

Unsound money thus creates a distinction between liquidity and solvency: a bank could be solvent in terms of the net present value of its assets but face a liquidity problem that prevents it from meeting its financial obligations within a certain period of time. But the lack of liquidity itself could trigger a bank run as depositors and lenders seek to get their deposits out of the bank. Worse, the lack of liquidity in one bank could lead to a lack of liquidity in other banks dealing with this bank, creating systemic risk problems. If the central bank credibly commits to providing liquidity in such cases, however, there will be no fear of a liquidity crisis, which in turn averts the scenario of a bank run and leaves the banking system safe. Fractional reserve banking, or maturity mismatching more generally, is likely to continue to cause financial crises without a central bank using an elastic money supply to bail out these banks.


pages: 554 words: 158,687

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

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

Carlo Panico, for instance, partly in debate with Ben Fine, treats bank costs as a necessary input that must earn profits. This is an erroneous approach to the intermediary role of banks. 47 Lapavitsas, Social Foundations of Markets, Money and Credit, ch. 4. 48 Bank runs are fairly rare events in the history of mature capitalism, though the crisis of the 2000s has lent renewed relevance to this phenomenon. Mainstream theory is fully aware of the ineluctable risk of bank runs given the normal practices of commercial banking; see Douglas Diamond and Philip Dybvig, ‘Bank Runs, Deposit Insurance and Liquidity’, Journal of Political Economy 91, 1983. 49 The idea of 100% reserves for banks, or ‘narrow banking’, is associated with the Chicago tradition in economics.

Traditional banking stands in contrast to securitized banking; the former is the business of making and holding loans, with insured demand deposits as the main source of funds; the latter is the business of packaging and reselling loans, with repurchase agreements as the main source of funds. In this light, the financial crisis of 2007–2008 was a system-wide bank run which, however, did not occur in the traditional but in the securitized banking sector. While a traditional bank run amounts to the mass withdrawal of deposits, a securitized bank run amounts to the mass withdrawal of repurchase agreements (repos). The cause of the run was concern about the liquidity of the bonds used as collateral for repos, particularly when these bonds were related to the subprime market.

Townsend, ‘Optimal Contracts and Competitive Markets with Costly State Verification’, Journal of Economic Theory 22, 1979. 9 See, for instance, Joseph Stiglitz and Andrew Weiss, ‘Credit Rationing in Markets with Imperfect Information’, American Economic Review 71:3, 1981, pp. 393–410; Nobuhiro Kiyotaki and John Moore, ‘Credit Cycles’, Journal of Political Economy 105:2, 1997. 10 Once again, the literature is very broad; see, very selectively, Hayne Leland and David H. Pyle, ‘Informational Asymmetries, Financial Structure and Financial Intermediation’, The Journal of Finance 32, 1977; John Bryant, ‘A Model of Reserves, Bank Runs, and Deposit Insurance’, Journal of Banking and Finance 4, 1980; Douglas Diamond and Philip Dybvig, ‘Bank Runs, Deposit Insurance and Liquidity’, Journal of Political Economy 91, 1983; Douglas Diamond, ‘Financial Intermediation and Delegated Monitoring’, Review of Economic Studies 51, 1984; John H. Boyd and Edward C. Prescott, ‘Financial Intermediary-Coalitions’, Journal of Economic Theory 38, 1986; Douglas Diamond and Raghuram Rajan, ‘Liquidity Risk, Liquidity Creation, and Financial Fragility: A Theory of Banking’, Journal of Political Economy 109:2, 2001; Franklin Allen and Anthony M.


pages: 246 words: 74,341

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

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

And now it turned out that most of them had been mislabeled. As if on command, investors stopped buying mortgage-backed securities. All the financial institutions and special companies whose business model was to take out short-term credit to keep their trade in securities going discovered that they could no longer renew their loans. It was a bank run. As it concerned the shadow banking sector, it did not involve actual crowds of depositors rushing to the bank to get their savings out before everybody else did, but the mechanism and the effect of causing the bank to go belly-up in the process were the same. All the special companies, conduits, and structured investment vehicles filled to the brim with mortgage-backed securities that the banks had placed off their balance sheets depended on regularly being able to renew short-term loans of maybe $1 billion, $10 billion, or $30 billion for maturities ranging from as much as nine months to as little as 24 hours.

In just a few moments, a stable bank could seem to be teetering on the brink of insolvency. Citigroup saw its balance sheet grow by $49 billion in a single day in December 2007. There was no other way out for the banks but to pull the emergency brake so that they could build up more capital, and several of them also started borrowing directly from the Fed. The drawn-out bank run can be said to have begun on August 9, 2007. That was when the French bank BNP Paribas took the unusual step of preventing investors from withdrawing money from three money-market funds invested in U.S. mortgagebacked securities. Only one week earlier, its head had made assurances that the bank's exposure to the subprime crisis was absolutely negligible, but now BNP explained that the collapse in prices made it impossible to assess the value of the funds.

He asked the person responsible whether this was a problem and was told that no major losses could be expected. Only two months later, however, the bank estimated its subprime losses at $10 billion. Prince chose to step down-taking $38 million in bonuses, stocks, and options with him. In September 2007, the United Kingdom was hit by a classic bank run taking place on real streets and squares. In scenes that the country had not witnessed for over 140 years, long lines of worried depositors wanting to withdraw their money were forming outside the branch offices of Northern Rock. This Newcastle bank had derived two-thirds of its financing from money-market loans, capable of being canceled at any time, and used the money for decadelong securitized mortgages whose value exceeded that of the actual homes.16 As Martin Wolf has concluded, government guarantees for the banking system meant that savers saw only the high rates of interest paid by Northern Rock, not the risks it was taking.


pages: 363 words: 107,817

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

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

(Davidson, 2008) The ability to securitise loans means banks can make profits not by the quality of the loans they make, but by their quantity. The willingness of banks to lend to the subprime market was partially (and possibly predominantly) attributable to securitisation. Government guarantees & ‘too big to fail’ “Bank runs are a common feature of the extreme crises that have played a prominent role in monetary history. During a bank run, depositors rush to withdraw their deposits because they expect the bank to fail. In fact, the sudden withdrawals can force the bank to liquidate many of its assets at a loss and to fail. During a panic with many bank failures, there is a disruption of the monetary system and a reduction in production.”

In accounting terms, this is known as cashflow insolvency. In banking jargon it is reffered to as a ‘liquidity crisis’. A liquidity crisis can happen if there is a significant outflow of funds (central bank reserves) from a bank to other banks or to customers who are withdrawing cash. This process can happen very quickly, as in a bank run, or slowly if its liabilities are withdrawn slightly faster than its loan assets are repaid. If a bank becomes unable to settle its liabilities to either customers or to other banks, then it is again declared insolvent and will need to cease trading. Avoiding a liquidity crisis relies on a process known as ‘asset liability management’, which involves managing and predicting inflows and outflows to ensure that a bank is always able to make its payments as and when it needs to.

A liquidity ratio is similar, but allows banks to hold highly-liquid assets such as government bonds in place of cash and central bank reserves, with the idea being that bonds can easily be exchanged for cash and central bank reserves if customers are making higher than usual withdrawals from their accounts. In short, liquidity ratios and reserve ratios say, “What percentage of customers could withdraw their deposits simultaneously before the bank runs out of base money?” A reserve ratio or liquidity ratio of 10% would imply that the bank could suffer a withdrawal of up to 10% of its deposits before it would become illiquid and have to close its doors. In contrast, the capital or ‘capital reserves’ that are required by the Basel Capital Accords relate to the assets side of the balance sheet.


pages: 249 words: 66,383

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

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

Deposits are not just a bank liability; they are the means of settling transactions in the economy. Further, depositors can pull out their money at any time they want. If the value of banking assets falls, spooked depositors may all demand their money when they sense the bank is in trouble—a bank run. Bank runs can lead to even healthy banks going under. For example, even a depositor in a healthy bank will “run” if he believes that other depositors are withdrawing their funds in a panic. The run dynamic is dangerous. It forces banks to sell assets at prices below market value. It can also damage the payment system of a country, which relies on bank deposits: when someone writes a check, it is cleared by shifting deposits from one bank to another.

If a bank’s short-term liabilities were all demanded at once, it would not be able call back the money it has lent out on a long-term basis. In other words, the mismatch in maturity makes banks vulnerable to a run. Even if a bank is fundamentally solvent, a run can make its failure self-fulfilling. A central bank can prevent self-fulfilling banking crises by providing liquidity (i.e., cash) to a bank to protect it from bank runs. Just the ability of a central bank to flood banks with cash may be sufficient to prevent runs from happening in the first place, because depositors then have faith that their money is protected. In the East Asian crisis, however, central banks couldn’t flood the banks with cash because it needed to be in U.S. dollars.

It can also damage the payment system of a country, which relies on bank deposits: when someone writes a check, it is cleared by shifting deposits from one bank to another. Businesses often pay their workers from deposit accounts. If the value of bank deposits is called into question, the entire payment system of a country may break down. It is a well-accepted axiom of banking regulation that the central bank must act as a “lender of last resort” to prevent bank runs. It can do so by explicitly insuring bank deposits, as the Federal Deposit Insurance Corporation (FDIC) does, or by lending freely to liquidity-constrained banks. The so-called Bagehot Rule, named after the famous British journalist Walter Bagehot, calls for central banks to lend without limit at a penalty rate, to solvent firms, against good collateral.


pages: 272 words: 64,626

Eat People: And Other Unapologetic Rules for Game-Changing Entrepreneurs by Andy Kessler

23andMe, Abraham Maslow, Alan Greenspan, Andy Kessler, bank run, barriers to entry, Bear Stearns, behavioural economics, Berlin Wall, Bob Noyce, bread and circuses, British Empire, business cycle, business process, California gold rush, carbon credits, carbon footprint, Cass Sunstein, cloud computing, collateralized debt obligation, collective bargaining, commoditize, computer age, Cornelius Vanderbilt, creative destruction, disintermediation, Douglas Engelbart, Dutch auction, Eugene Fama: efficient market hypothesis, fiat currency, Firefox, Fractional reserve banking, George Gilder, Gordon Gekko, greed is good, income inequality, invisible hand, James Watt: steam engine, Jeff Bezos, job automation, Joseph Schumpeter, junk bonds, Kickstarter, knowledge economy, knowledge worker, Larry Ellison, libertarian paternalism, low skilled workers, Mark Zuckerberg, McMansion, Michael Milken, Money creation, Netflix Prize, packet switching, personalized medicine, pets.com, prediction markets, pre–internet, profit motive, race to the bottom, Richard Thaler, risk tolerance, risk-adjusted returns, Silicon Valley, six sigma, Skype, social graph, Steve Jobs, The Wealth of Nations by Adam Smith, transcontinental railway, transfer pricing, vertical integration, wealth creators, Yogi Berra

One of the roles of the Federal Reserve is the lender of last resort, which they unfortunately learned after the stock market crash of 1929 and the bank runs that followed. Ten thousand banks failed, roughly 40 percent, and $2 billion in deposits were wiped out—30 percent of the money supply disappeared. So did a similar percentage of GDP, and unemployment hit 25 percent. You can see that lost money supply is not a good thing. So the other big change happened twenty years later, in 1933. The Federal Deposit Insurance Corporation (FDIC) was set up to insure depositors’ money, negating the desire for people to line up to get their money out at the first sign of a bank’s weakness. No more bank runs. Not many, anyway. (We can argue about whether the FDIC is really an insurance policy, as they undercharge banks for the privilege of insuring against bank runs, and you and I, the taxpayers, make up the difference.

(We can argue about whether the FDIC is really an insurance policy, as they undercharge banks for the privilege of insuring against bank runs, and you and I, the taxpayers, make up the difference. Still, the FDIC is a decent bargain. It’s a backstop to panics—bank run panics anyway!) As long as banks make prudent loans, which, as we’ve seen in 2008, is not the greatest assumption. Twin bargains. Twin safety nets for fractional reserve banking so we don’t have to go back to the stifling days of gold. The Federal Reserve allows banks to post assets in exchange for loans to redeem depositors, in effect making the Fed the lender of last resort to banks.

Money from nothing (and your checks for free). Sort of, anyway. This sleight of hand is called fractional reserve banking, and was an easy (if not a little sleazy, no?) way to increase money supply to, again, make room for productivity and wealth creation. But how much money? No one knows, which is why there were occasionally bank runs and panics and depressions that followed easy credit, one of the hazards of this flimsy system. Sixteen panics since 1812—it’s as American as apple pie! But banking did increase money supply beyond just how much gold could be extracted. In fact, since Adam and Eve, 160,000 tons of gold have been panned and mined from Mother Earth, enough to fill two Olympic-sized swimming pools.


pages: 436 words: 98,538

The Upside of Inequality by Edward Conard

affirmative action, Affordable Care Act / Obamacare, agricultural Revolution, Alan Greenspan, Albert Einstein, assortative mating, bank run, Berlin Wall, book value, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Climatic Research Unit, cloud computing, corporate governance, creative destruction, Credit Default Swap, crony capitalism, disruptive innovation, diversified portfolio, Donald Trump, en.wikipedia.org, Erik Brynjolfsson, Fall of the Berlin Wall, full employment, future of work, Gini coefficient, illegal immigration, immigration reform, income inequality, informal economy, information asymmetry, intangible asset, Intergovernmental Panel on Climate Change (IPCC), invention of the telephone, invisible hand, Isaac Newton, Jeff Bezos, Joseph Schumpeter, Kenneth Rogoff, Kodak vs Instagram, labor-force participation, Larry Ellison, liquidity trap, longitudinal study, low interest rates, low skilled workers, manufacturing employment, Mark Zuckerberg, Martin Wolf, mass immigration, means of production, meta-analysis, new economy, offshore financial centre, paradox of thrift, Paul Samuelson, pushing on a string, quantitative easing, randomized controlled trial, risk-adjusted returns, Robert Gordon, Ronald Reagan, Second Machine Age, secular stagnation, selection bias, Silicon Valley, Simon Kuznets, Snapchat, Steve Jobs, survivorship bias, The Rise and Fall of American Growth, total factor productivity, twin studies, Tyler Cowen, Tyler Cowen: Great Stagnation, University of East Anglia, upwardly mobile, War on Poverty, winner-take-all economy, women in the workforce, working poor, working-age population, zero-sum game

.* It briefly guaranteed $15 trillion of deposits, loaned the banks $2 trillion to fund withdrawals, and made a profit.8 The Fed made a profit acting as the lender of last resort in the worst financial crisis in nearly a millennium. The Fed took surprisingly little risk despite an avalanche of reckless claims to the contrary. Rather than strengthening the Fed’s ability to act more effectively as the lender of last resort in a bank run, policy makers have done the opposite. They have held banks more responsible for bank runs by intentionally weakening the Fed’s ability to act in a panic. Banks pulled back lending by raising credit standards. Risk-averse savings have subsequently sat unused, and the recovery has been anemic. Other well-intentioned policies would have the same effect.

More valuable on-the-job training, large synergistic communities of experts, highly motivated and trained talent, and equity in the hands of eager risk-takers had compounding effects on the value of successful risk-taking. I recommended lower marginal tax rates to maintain higher payoffs in the face of slower growth in the aftermath of the financial crisis. The Obama administration did the opposite. I cautioned that holding the banks responsible for bank runs, instead of just loan losses, at a time when they were already reluctant to lend, would slow growth. I recommended strengthening government guarantees of banks and the Fed’s ability to function as the lender of last resort but charging banks and borrowers for these guarantees. The Obama administration did the opposite.

That might be the case if risk underwriters had let equity sit idle to compensate for the risk of government guarantees of banks that lure risk-averse savings from their mattresses. After all, taxpayers bear those risks. But why would equity dial back risk-taking in the face of government guarantees of banks? The government made a profit loaning banks $2 trillion to fund withdrawals and making $15 trillion of guarantees (to stop further withdrawals) during the worst bank run since the 1930s.30 How concerned should risk-bearing taxpayers be about the risk of government guarantees? While it is true that, to a certain extent, bank guarantees also guarantee loan losses, one way or another the economy already bears that risk. Government guarantees of banks don’t change that.


pages: 460 words: 122,556

The End of Wall Street by Roger Lowenstein

"World Economic Forum" Davos, Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, Bear Stearns, benefit corporation, Berlin Wall, Bernie Madoff, Black Monday: stock market crash in 1987, Black Swan, break the buck, Brownian motion, Carmen Reinhart, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, fear of failure, financial deregulation, financial engineering, fixed income, geopolitical risk, Glass-Steagall Act, Greenspan put, high net worth, Hyman Minsky, interest rate derivative, invisible hand, junk bonds, Ken Thompson, Kenneth Rogoff, London Interbank Offered Rate, Long Term Capital Management, low interest rates, margin call, market bubble, Martin Wolf, Michael Milken, money market fund, moral hazard, mortgage debt, negative equity, Northern Rock, Ponzi scheme, profit motive, race to the bottom, risk tolerance, Ronald Reagan, Rubik’s Cube, Savings and loan crisis, savings glut, short selling, sovereign wealth fund, statistical model, the payments system, too big to fail, tulip mania, Y2K

Even in financial markets, some slackening of the rules was appropriate—as in, for instance, the liberalization that permitted interstate banking. But deregulators made two mistakes. One was failing to recognize that financial markets were more fragile than others, more vulnerable to panics and, indeed, more vital to the economy overall. Airline failures are rarely front-page news; bank runs are. The other mistake was failing to see that the relative financial stability of the postwar era was largely a result of the regulation put in place during the New Deal and after. With the turn toward market-driven economies in the 1980s, it was thought that markets had outgrown the ancient perils that arise from speculative frenzy, excessive borrowing, and greed—when in fact, Washington had been holding them in check.

As Fannie’s and Freddie’s stocks were being battered, trouble was flaring at IndyMac, the Pasadena bank spun off from Countrywide. IndyMac, which had specialized in Alt-A loans, had been left holding thousands of shaky mortgages when the securitization market shut down. From late June to early July, Indy was hit with a bank run. Depositors withdrew $1.3 billion, about $100 million a day. On July 11, two months after the bank’s chairman, Michael Perry, had assured investors that his company was well capitalized, the Office of Thrift Supervision seized Indy—the second biggest bank to fail in U.S. history, trailing only Continental Illinois in 1984.

But credit was effectively being rationed by rank speculators. Worse, some of those purchasing “insurance” were short-sellers with an interest in seeing insurance prices soar. Because rising prices in the swap market were contagious, they contributed to fears of systemic weakness. They were not unlike the bank runs that fed the gloom of the 1930s. A junior Lehman executive, reflecting on rising swap rates, the pressure from short-sellers, and tightening credit conditions in general, sensed “the world falling apart.” The deepening woes of Fannie and Freddie further darkened the mood at Lehman—as did the nonstop articles speculating on the firm’s demise, which felt to AIG’s Willumstad like a tourniquet suffocating his company, too.


pages: 311 words: 99,699

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

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

The next morning, Northern Rock savers flocked to the bank’s branch offices, and pictures of terrified savers in a long line in front of the bank beamed onto computers, television screens, BlackBerries, and mobile phones around the world. By midmorning, a full-scale bank run was under way. Never before had so many terrified consumers and investors seen a bank run in action, in real time. Technology was helping to spread the panic. What brought Northern Rock down was another variant of the woes that had beset IKB and Cairn. At the turn of the century, the bank had embraced securitization with a vengeance, raising funds by selling masses of mortgage-backed bonds to investors all over the world.

HG6024.U6T48 2009 332.660973—dc22 2009005127 ISBN-13: 978-1-4391-0075-2 ISBN-10: 1-4391-0075-6 Visit us on the Web: http://www.SimonandSchuster.com For Helen and Analiese CONTENTS PREFACE PART 1: INNOVATION 1 THE DERIVATIVES DREAM 2 DANCING AROUND THE REGULATORS 3 THE DREAM TEAM 4 THE CUFFS COME OFF 5 MERGER MANIA PART 2: PERVERSION 6 INNOVATION UNLEASHED 7 MR. DIMON TAKES CHARGE 8 RISKY BUSINESS 9 LEVERAGING LUNACY 10 TREMORS PART 3: DISASTER 11 FIRST FAILURES 12 PANIC TAKES HOLD 13 BANK RUN 14 BEAR BLOWS UP 15 FREE FALL EPILOGUE NOTES GLOSSARY ACKNOWLEDGMENTS ABOUT THE AUTHOR PREFACE Were the bankers mad? Were they evil? Or were they simply grotesquely greedy? To be sure, there have been plenty of booms and busts in history; market crashes are almost as old as the invention of money itself.

At the ESF conference in Barcelona, for example, American brokers and City bankers swarmed around the Germans, in the hope of selling them more bonds. However, as Winters stood in Geneva International in July, it was clear that something had gone badly wrong with the IKB funds. He called his traders in London. “What’s going on?” he asked. “There’s something like a bank run starting in the commercial paper markets,” a trader replied. That news was alarming. Until that point, the commercial paper market had been deemed one of the safest, and dullest, corners of the financial world. It was where General Electric and other blue-chip giants raised the short-term funds that they needed for day-to-day operations.


pages: 430 words: 109,064

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

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

If some creditors thought that this might happen, they would try to get their money out first, which would provoke other creditors to do the same, triggering a bank run as everyone scrambled to avoid being last in line. All banks have this potential weakness, since they borrow short and lend long—they borrow money that they promise to return on short notice (deposits), and lend it out for long periods of time (mortgages). The rush by creditors to get their money out first is a classic feature of financial crises around the world, particularly in emerging markets. In the United States since the 1930s, deposit insurance has generally prevented bank runs by depositors—but that insurance did not cover the institutions lending money overnight to Bear Stearns and the hedge funds who parked their securities at Bear.

(One theory at the time—since largely discredited—was that this infection had weakened commercial banks and helped cause the Depression.)100 As a result, J.P. Morgan was forced to spin off its investment banking operations, which became Morgan Stanley. Commercial banks were protected from panic-induced bank runs by the Federal Deposit Insurance Corporation (FDIC), but had to accept tight federal regulation in return. The governance of the Federal Reserve was also reformed in the 1930s, strengthening the hand of presidential appointees and weakening the relative power of banks. The system that took form after 1933, in which banks gained government protection in exchange for accepting strict regulation, was the basis for half a century of financial stability—the longest in American history.

As the long boom of the 1990s continued and the stock market continued to go up, LTCM soon faded into memory. U.S. policymakers did draw a number of important lessons from the emerging market crises, outlined by Treasury Secretary Larry Summers in a major lecture at the 2000 conference of the American Economics Association.51 Financial crises were the result of fundamental policy weaknesses: “Bank runs or their international analogues are not driven by sunspots: their likelihood is driven and determined by the extent of fundamental weaknesses.” It was more important to look at the soundness of the financial system than to simply count the total amount of debt: “When well-capitalized and supervised banks, effective corporate governance and bankruptcy codes, and credible means of contract enforcement, along with other elements of a strong financial system, are present, significant amounts of debt will be sustainable.


pages: 1,066 words: 273,703

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

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

After that, the main damage to Northern Rock’s balance sheet was done by online withdrawals. The elderly savers queuing in the streets made for alarming TV footage. But it was not their panic that was bringing down the bank. It was a bank run operating on an altogether different scale at the speed of computer terminals in money markets across the world. It was a bank run without deposit withdrawals. There had been no deposits. There was nothing to withdraw. For banks to find themselves a trillion dollars short, all that needed to happen was for major providers of funding to withdraw from the money markets.

As Hyun Song Shin, chief economist at the Bank for International Settlements and one of the foremost thinkers of the new breed of “macrofinance,” has put it, we need to analyze the global economy not in terms of an “island model” of international economic interaction—national economy to national economy—but through the “interlocking matrix” of corporate balance sheets—bank to bank.22 As both the global financial crisis of 2007–2009 and the crisis in the eurozone after 2010 would demonstrate, government deficits and current account imbalances are poor predictors of the force and speed with which modern financial crises can strike.23 This can be grasped only if we focus on the shocking adjustments that can take place within this interlocking matrix of financial accounts. For all the pressure that classic “macroeconomic imbalances”—in budgets and trade—can exert, a modern global bank run moves far more money far more abruptly.24 What the Europeans, the Americans, the Russians and the South Koreans were experiencing in 2008 and the Europeans would experience again after 2010 was an implosion in interbank credit. As long as your financial sector was modestly proportioned, big national currency reserves could see you through.

But the really decisive break in market confidence came on the morning of August 9, 2007, when BNP Paribas, France’s most prominent bank, announced that it was freezing three of its funds.5 The explanation Paribas offered marked a decisive moment in the opening of the crisis: “The complete evaporation of liquidity in certain market segments of the U.S. securitisation market has made it impossible to value certain assets fairly regardless of their quality or credit rating.”6 Without valuation the assets could not be used as collateral. Without collateral there was no funding. And if there was no funding all the banks were in trouble, no matter how large their exposure to real estate. In a general liquidity freeze, the equivalent of a giant bank run, no bank was safe. As the implications of the announcement from Paris sank in, around noon Central European Time on August 9, 2007, the cost of borrowing on European interbank markets surged.7 As one senior bank executive commented, the event was disorientating: “It was something none of us had experienced.


pages: 241 words: 81,805

The Rise of Carry: The Dangerous Consequences of Volatility Suppression and the New Financial Order of Decaying Growth and Recurring Crisis by Tim Lee, Jamie Lee, Kevin Coldiron

active measures, Alan Greenspan, Asian financial crisis, asset-backed security, backtesting, bank run, Bear Stearns, Bernie Madoff, Bretton Woods, business cycle, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, collapse of Lehman Brothers, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, currency risk, debt deflation, disinformation, distributed ledger, diversification, financial engineering, financial intermediation, Flash crash, global reserve currency, implied volatility, income inequality, inflation targeting, junk bonds, labor-force participation, Long Term Capital Management, low interest rates, Lyft, margin call, market bubble, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, negative equity, Network effects, Ponzi scheme, proprietary trading, public intellectual, purchasing power parity, quantitative easing, random walk, rent-seeking, reserve currency, rising living standards, risk free rate, risk/return, sharing economy, short selling, short squeeze, sovereign wealth fund, stock buybacks, tail risk, TikTok, Uber and Lyft, uber lyft, yield curve

The Federal Reserve was created in the years following the Panic of 1907 in an effort to bring stability to a domestic banking system that was beset with recurring financial panics and bank runs. The international monetary system—the use of gold as a single global currency—was also changed around the same time by political choices made in response to the economic necessities of World War I. Neither the domestic banking system nor the gold standard worked for society, and so they were themselves changed. This process of change was neither discrete, nor uncontroversial, nor even initially successful. The Federal Reserve System did not end bank runs; that required more political decisions, specifically the establishment of deposit insurance and effective bank supervision in 1933.

Index Page numbers followed by f indicate figures; t indicate tables. anti-carry crashes, 170 anti-carry regimes, 165, 171–172, 210, 212 carry regime similarities to, 173–175 monetary perspective on, 168–170 signs of end of, 215 AQR Capital, 79 arbitrage, covered interest parity principle and, 21 Asian financial crisis, 23–25 global financial crisis compared with, 30 asset prices business cycle and, 126 carry regime and, 204 distortion of, 7 inflation of, 113–114 options and, 147 recessions and declines in, 6 assets under management (AUM), 74 by sovereign wealth funds, 75 Australia capital inflows, 40, 40f, 42 credit and net claims, 40, 40f credit growth, 40f, 41 interest rate spreads and, 41–42, 60–61 Australian dollar, 30 capital flows into, 62 returns on, 97, 97f bailouts, 197–199, 203 Bain and Company, 80 balance of payments, Turkey, 45 Bank for International Settlements (BIS), 15, 17, 22 carry portfolio position comparison with, 63, 63t on corporate use of carry strategies, 80 currency liquidity data, 62 net claims data, 41 Bank of Japan (BOJ), 26, 216 quantitative easing policies by, 31 Bank of Korea, 197 bank runs, 218 banking system, money creation by, 109 bank-run dynamics, 65 Bhattacharya, Utpal, 142 bid-ask spread, 158–159, 167 big breaks, 184 BIS. See Bank for International Settlements BOJ. See Bank of Japan Brazil, 19, 39, 55n6, 65–66 current account, 31 Brazilian real, 11, 30, 66 Bretton Woods system, 218 Brownian noise, 97, 97f Bruno, Valentina, 80–81 bubble-boom economies, carry bubble conditions and, 39 business cycle carry and global, 2 carry bubbles and, 127–134 carry crashes and, 127–134 carry influence on, 57, 69 carry regime and, 125–127 money supply and, 125–126 Caballero, Ricardo, 59 call options, 146–147 Cambridge Associates, 79 capital asset pricing model, 99 Capital in the Twenty-First Century (Piketty), 219 221 222 capital inflows, Australia, 40, 40f, 42 capitalism, 195, 219, 220 carry central banks’ role in, 5–8 compensation incentives for, 70–72 corporate use of, 80–83 as cumulative advantage, 181–184 defining, 2 as flow from weak to strong, 179–181 global business cycle and, 2 hedge funds as agents of, 72–73 insidious structural aspects of, 200–205 leverage importance to, 70–72 lost opportunity to lean against, 220 as luck compounded, 184–186 monetary policy and, 3 as naturally occurring phenomenon, 88 necessary amounts of, 174 omnipresence of, 190–191 as power, 191–192 as rent-seeking, 175–177 rise of, 1 volatility, 86 carry bubbles, 6, 7 business cycle and, 127–134 credit bubbles and, 37–38, 41 credit demand and, 114 disguised, 134–140 economic indicators distorted by, 44–45 economic problems obscured by, 44 inflation and, 39 monetary conditions and, 39 nonmonetary assets and, 169 Ponzi schemes and, 140–143 as risk mispricing, 142 Turkey, 42–46 carry crashes, 6 Asian financial crisis and, 23–25 bailouts limiting losses from, 203 business cycle and, 127–134 carry trade returns and, 36 deflation and, 7, 170 deflation shock and, 121–124 in emerging economies, 201 incentive changes and, 84 inevitability of, 34–35, 108 leverage and, 96–98 liquidity and, 128 money supply and, 122–123 INDEX of 1998, 25–26 Turkey, 42–46 Turkish lira, of 2018, 45 of 2008, 30, 31 Volmageddon, 98, 161 yen melt-up and, 23–24 carry portfolios backtesting, 65–67 BIS data comparison with, 63, 63t constructing, 49–50 lessons from historical study of, 64–65 losses in, 51–56, 54f carry regime, 2 anti-carry regime similarity to, 173–175 asset prices and, 204 business cycle and, 125–127 central bank policies and, 86–89, 107, 208, 210 central bank power and, 123 central banks and collapses of, 215–216 central banks weakened by, 7 debt levels and, 168 defining, 107–108 deflation and, 113–121, 203, 210, 213 development of, 127, 134 economic growth and, 209 economic imbalances from, 201 financial market structure and, 7 fragility of, 201 monetary equilibrium and, 169 monetary growth and, 169 monetary perspective on, 168–170 money in, 108–113 nonmonetary assets and, 112, 114, 122 resource allocation and, 114–115 risk mispricing and, 134–140 S&P 500 importance to, 86–87, 87f theoretical alternative to, 166–168 vanishing point and, 116, 195, 209–210 volatility signs of ending, 214–218 carry trade.

In particular, since the use of leverage means that even modest changes in position value can translate into a total loss of capital, risk controls will force trades to be closed when certain thresholds are hit. Risk controls can come from internal limits and can also be forced upon managers by lenders who require additional collateral to be posted to cover losses. In either case it is very easy for a “bank-run” dynamic to take place—losses lead to position reduction, forcing managers to trade into markets that are moving against them and, in the case of many emerging currencies, are illiquid. This activity triggers further losses, which require even more position reduction, and the cycle continues until moves in the exchange rate are so extreme that unlevered traders are induced to enter the market or central banks are forced to intervene to stabilize conditions.


pages: 708 words: 196,859

Lords of Finance: The Bankers Who Broke the World by Liaquat Ahamed

Alan Greenspan, Albert Einstein, anti-communist, bank run, banking crisis, Bretton Woods, British Empire, business cycle, capital controls, central bank independence, centre right, credit crunch, currency manipulation / currency intervention, Etonian, Ford Model T, full employment, gentleman farmer, German hyperinflation, Glass-Steagall Act, index card, invisible hand, Lao Tzu, large denomination, Long Term Capital Management, low interest rates, margin call, market bubble, Mexican peso crisis / tequila crisis, mobile money, money market fund, moral hazard, new economy, open economy, plutocrats, price stability, purchasing power parity, pushing on a string, rolodex, scientific management, the market place

But for all of this armory of instruments, ultimately the goal of a central bank in a financial crisis was both very simple and very elusive—to reestablish trust in banks. Such breakdowns are not some historical curiosity. As I write this in October 2008, the world is in the middle of one such panic—the most severe for seventy-five years, since the bank runs of 1931-1933 that feature so prominently in the last few chapters of this book. The credit markets are frozen, financial institutions are hoarding cash, banks are going under or being taken over by the week, stock markets are crumbling. Nothing brings home the fragility of the banking system or the potency of a financial crisis more vividly than writing about these issues from the eye of the storm.

No doubt irritated at this obvious attempt to renege on a clear promise, he stormed out and began reporting that the bank was in trouble. By the afternoon, a small horde of depositors had begun lining up outside the branch’s tiny neoclassical limestone building to withdraw their savings before closing time. Until now, despite the Depression, there had been no bank runs in New York, and soon a crowd of twenty thousand curious bystanders had gathered to watch. As the anxious depositors became restless, a squad of mounted police had to be sent in to control them and several customers were arrested; and when the mob became frantic, the police charged the crowd with their horses.

He would testify later that “I told them that the Bank of United States occupied a rather unique position in New York City, that in point of people served it was probably the largest bank in the city and that its closing might affect a large number of smaller banks and that I was afraid that it would be the spark that would ignite the whole city.” Broderick reminded the grandees that only two or three weeks before “they had rescued two of the largest private bankers in the city.” One of them was Kidder Peabody, an investment bank run by Boston Brahmins, founded in 1865, which as result of the crash and of subsequent withdrawals of deposits by, among others, the government of Italy, had had to be bailed out in 1930 with $15 million from J. P. Morgan and Chase. Though the meeting continued into the early hours of the morning, he was unable to persuade the few recalcitrants to change their mind.


pages: 381 words: 101,559

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

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

If the Knickerbocker revelations had occurred in calmer markets, they might not have triggered such a panicked response, but the market was already nervous and volatile after massive losses caused by the 1906 San Francisco earthquake. The failure of the Knickerbocker Trust was just the beginning of a more general loss of confidence, which led to another stock market crash, even further bank runs, and finally a full-scale liquidity crisis and threat to the stability of the financial system as a whole. This threat was stemmed only by collective action of the leading bankers of the day in the form of a private financial rescue organized by J. P. Morgan. In one of the most famous episodes in U.S. financial history, Morgan summoned the financiers to his town house in the Murray Hill neighborhood of Manhattan and would not allow them to leave until they had hammered out a rescue plan involving specific financial commitments by each one intended to calm the markets.

Leading English banks had made leveraged investments in illiquid assets funded with short-term liabilities, exactly the type of investing that destroyed Lehman Brothers in 2008. As those liabilities came due, foreign creditors converted their sterling claims into gold that soon left England headed for the United States or France or some other gold power not yet feeling the full impact of the crisis. With the outflow of gold becoming acute and the pressures of the bank run threatening to destroy major banks in the City of London, England went off the gold standard on September 21, 1931. Almost immediately sterling fell sharply against the dollar and continued dropping, falling 30 percent in a matter of months. Many other countries, including Japan, the Scandinavian nations and members of the British Commonwealth, also left the gold standard and received the short-run benefits of devaluation.

Roosevelt was elected president to replace Herbert Hoover, whose entire term had been consumed by a stock bubble, a crash and then the Great Depression itself. However, Roosevelt would not be sworn in as president until March 1933, and in the four months between election and inauguration the situation deteriorated precipitously, with widespread U.S. bank failures and bank runs. Millions of Americans withdrew cash from the banks and stuffed it in drawers or mattresses, while others lost their entire life savings because they did not act in time. By Roosevelt’s inauguration, Americans had lost faith in so many institutions that what little hope remained seemed embodied in Roosevelt himself.


pages: 318 words: 99,524

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

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

If Greg’s views were right, David said, more and more funds would hit the rocks. But if Greg’s bet really paid off and the mortgage market collapsed, the effects could be utterly catastrophic because banks had a colossal amount of mortgage risk on the books. The money markets could seize up and there could even be bank runs. Bank runs! This was a frightening, archaic threat, redolent of panic and of grainy, sepia photos of long uneven lines outside banks with now-forgotten names. His parting recommendation that night was both chilling and prescient: ‘Sell any stocks you own and don’t buy anything expensive.’ Disastrously for people the world over, both Greg and David were soon proved completely correct.

In part, that is because the money the bank itself has borrowed in order to lend it to you might have a different maturity to your loan, or it might have a floating interest rate versus your fixed one (or vice versa). This is ‘market risk’. But primarily, the risk comes from the fact you might not pay back the loan. This is ‘credit risk’. Away from the aeons-old business of lending money at interest, many large banks run various trading businesses, most of which use the principal model. Merrill Lynch was no exception. Merrill’s bankers traded bonds; they traded interest rate swaps; they traded loans; they traded short-dated deposits. Loic would take me around the cavernous trading floor during quieter moments and point out where all these businesses were located, their staff hunched over tightly packed rows of desks.

Shortly afterwards, both entities were declared bankrupt. On 6 August, the American Home Mortgage Investment Corporation (a retail mortgage lender) also went bankrupt. Ameriquest went on 31 August. By mid-September, on my side of the Atlantic and with money markets now in meltdown, the mortgage lender Northern Rock was the scene of the first bank run in the UK for 150 years. By now, volatility and fear had returned with a vengeance to equity, bond and FX markets after years of gradually increasing calm. It was clear that the previous period of unusual stability was just the water rushing from the beach before a tsunami. From late 2007 onwards, until the end of 2008, the succession of failures and forced takeovers of financial firms reads like the familiar but dolorous list of battles in a terrible, lost war: Countrywide, Bear Stearns, Indy-Mac, Fannie Mae, Freddie Mac, Lehman Brothers, Merrill Lynch, AIG, and on, and on.


pages: 661 words: 185,701

The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance by Eswar S. Prasad

access to a mobile phone, Adam Neumann (WeWork), Airbnb, algorithmic trading, altcoin, bank run, barriers to entry, Bear Stearns, Ben Bernanke: helicopter money, Bernie Madoff, Big Tech, bitcoin, Bitcoin Ponzi scheme, Bletchley Park, blockchain, Bretton Woods, business intelligence, buy and hold, capital controls, carbon footprint, cashless society, central bank independence, cloud computing, coronavirus, COVID-19, Credit Default Swap, cross-border payments, cryptocurrency, deglobalization, democratizing finance, disintermediation, distributed ledger, diversified portfolio, Dogecoin, Donald Trump, Elon Musk, Ethereum, ethereum blockchain, eurozone crisis, fault tolerance, fiat currency, financial engineering, financial independence, financial innovation, financial intermediation, Flash crash, floating exchange rates, full employment, gamification, gig economy, Glass-Steagall Act, global reserve currency, index fund, inflation targeting, informal economy, information asymmetry, initial coin offering, Internet Archive, Jeff Bezos, Kenneth Rogoff, Kickstarter, light touch regulation, liquidity trap, litecoin, lockdown, loose coupling, low interest rates, Lyft, M-Pesa, machine readable, Mark Zuckerberg, Masayoshi Son, mobile money, Money creation, money market fund, money: store of value / unit of account / medium of exchange, Network effects, new economy, offshore financial centre, open economy, opioid epidemic / opioid crisis, PalmPilot, passive investing, payday loans, peer-to-peer, peer-to-peer lending, Peter Thiel, Ponzi scheme, price anchoring, profit motive, QR code, quantitative easing, quantum cryptography, RAND corporation, random walk, Real Time Gross Settlement, regulatory arbitrage, rent-seeking, reserve currency, ride hailing / ride sharing, risk tolerance, risk/return, Robinhood: mobile stock trading app, robo advisor, Ross Ulbricht, Salesforce, Satoshi Nakamoto, seigniorage, Sheryl Sandberg, Silicon Valley, Silicon Valley startup, smart contracts, SoftBank, special drawing rights, the payments system, too big to fail, transaction costs, uber lyft, unbanked and underbanked, underbanked, Vision Fund, Vitalik Buterin, Wayback Machine, WeWork, wikimedia commons, Y Combinator, zero-sum game

There are circumstances in which the very existence of an account-based CBDC could trigger a flight of deposits out of the banking system. Flight Risk A bank run occurs when depositors lose confidence in a bank and rush to withdraw their deposits. When a commercial bank faces such a “run” on its deposits, it quickly depletes its reserves and has to close its doors. The loss of confidence in a bank might be precipitated by new information about a bank’s financial position or, in some cases, by misinformation. There are historical examples of bank runs being precipitated by unfounded rumors about a bank’s solvency. Since a bank has reserves that cover only a portion of its deposits, while its assets are loans that cannot be called back or liquidated at short notice, a loss of confidence can become a self-fulfilling prophecy of failure.

4    Bitcoin Sets Off a Revolution, Then Falters   5    Crypto Mania III    Central Bank Money   6    The Case for Central Bank Digital Currencies   7    Getting Central Bank Digital Currencies Off the Ground IV    Ramifications   8    Consequences for the International Monetary System   9    Central Banks Run the Gauntlet 10    A Glorious Future Beckons, Perhaps Notes References Acknowledgments Credits Index PART I Laying the Bedrock CHAPTER 1 Racing to the Future A book is written when there is something specific that has to be discovered. The writer doesn’t know what it is, nor where it is, but knows it has to be found.

This is why banks are valuable to an economy. And this is also why they are subject to failure. Concerns about a bank’s financial solvency could lead to a panic-driven frenzy of deposit withdrawals. This sort of panic, which was quite common in the first half of the twentieth century, is described as a bank run. That ominous phrase literally conjures images of depositors running to a bank to be first in line in the belief that, depending on how much cash it has, the bank can afford to pay only a certain number of depositors before running out of money and shutting its doors. Unless there is a backstop, such as a government that can credibly commit to returning money to a failed bank’s depositors, such crises of confidence can spread quickly to other banks, bringing both the banking system and the economy to their knees.


pages: 290 words: 84,375

China's Great Wall of Debt: Shadow Banks, Ghost Cities, Massive Loans, and the End of the Chinese Miracle by Dinny McMahon

"World Economic Forum" Davos, 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, American Society of Civil Engineers: Report Card, Andrei Shleifer, Asian financial crisis, bank run, business cycle, California gold rush, capital controls, crony capitalism, dark matter, Deng Xiaoping, Donald Trump, Edward Glaeser, eurozone crisis, financial innovation, fixed income, Gini coefficient, Global Witness, Great Leap Forward, high-speed rail, if you build it, they will come, income inequality, industrial robot, invisible hand, low interest rates, megacity, middle-income trap, military-industrial complex, money market fund, mortgage debt, new economy, peer-to-peer lending, Ponzi scheme, Ronald Reagan, short selling, Silicon Valley, subprime mortgage crisis, too big to fail, trickle-down economics, urban planning, working-age population, zero-sum game

But what if, suddenly, there weren’t? Financial crises aren’t caused by bad loans. Much like a conventional bank run, crises occur when people, en masse, no longer believe that their money is safe, and so they rush to pull it out of wherever it’s invested. The reason they lose faith might be that they’re worried that a bank has too many bad loans, but it’s the act of withdrawing the funds that undermines the viability of a bank, or the entire financial system. In its simplest form, such a loss of faith manifests itself as a bank run, as in the Jimmy Stewart movie It’s a Wonderful Life, where the sight of people queuing up outside a bank branch leads others to do the same, draining the bank of its cash reserves until it can no longer satisfy depositors’ demands for their money back.

But China has grown quite adept at dealing with conventional runs. In 2014, two rural banks in Jiangsu Province experienced a bank run that lasted for three days after a number of local underground financiers and unregulated loan shops collapsed, making people jittery about whether the local banks were exposed to the same problems. The People’s Bank of China rushed money to the branches. The bricks of freshly delivered cash were stacked up behind the tellers in order to calm nerves. The modern, more dangerous version of the bank run happens when the trust between banks themselves breaks down and they decline to continue lending to each other.

wealth-management products: Ambrose Evans-Pitchard, “China Losing Control as Stocks Crash Despite Emergency Measures,” The Telegraph, July 27, 2015, http://www.telegraph.co.uk/finance/china-business/11766449/China-losing-control-as-stocks-crash-despite-emergency-measures.html. to calm nerves: John Ruwitch, “How Rumor Sparked Panic and Three-Day Bank Run in Chinese City,” Reuters, March 26, 2014, http://www.reuters.com/article/us-china-banking-idUSBREA2P02H20140326. falling any further: Gabriel Wildau, “China’s ‘National Team’ Owns 6% of Stock Market,” Financial Times, November 25, 2015, https://www.ft.com/content/7515f06c-939d-11e5-9e3e-eb48769cecab.


pages: 576 words: 105,655

Austerity: The History of a Dangerous Idea by Mark Blyth

"there is no alternative" (TINA), accounting loophole / creative accounting, Alan Greenspan, balance sheet recession, bank run, banking crisis, Bear Stearns, Black Swan, book value, Bretton Woods, business cycle, buy and hold, capital controls, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, collateralized debt obligation, correlation does not imply causation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, debt deflation, deindustrialization, disintermediation, diversification, en.wikipedia.org, ending welfare as we know it, Eugene Fama: efficient market hypothesis, eurozone crisis, financial engineering, financial repression, fixed income, floating exchange rates, Fractional reserve banking, full employment, German hyperinflation, Gini coefficient, global reserve currency, Greenspan put, Growth in a Time of Debt, high-speed rail, Hyman Minsky, income inequality, information asymmetry, interest rate swap, invisible hand, Irish property bubble, Joseph Schumpeter, Kenneth Rogoff, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, Long Term Capital Management, low interest rates, market bubble, market clearing, Martin Wolf, Minsky moment, money market fund, moral hazard, mortgage debt, mortgage tax deduction, Occupy movement, offshore financial centre, paradox of thrift, Philip Mirowski, Phillips curve, Post-Keynesian economics, price stability, quantitative easing, rent-seeking, reserve currency, road to serfdom, Robert Solow, savings glut, short selling, structural adjustment programs, tail risk, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, Two Sigma, unorthodox policies, value at risk, Washington Consensus, zero-sum game

So companies borrow and lend money to each other over very short periods at very low interest rates, typically swapping assets for cash and then repurchasing those assets the next day for a fee—hence “sale” and “repurchase”—or “repo.” It is cheaper than borrowing from the local bank and doesn’t involve fleets of armored trucks. What happened in 2007 and 2008 was a bank run through this repo market.5 A bank run occurs when all the depositors in a bank want their cash back at the same time and the bank doesn’t have enough cash on hand to give it to them. When this happens, banks either borrow money to stay liquid and halt the panic or they go under. The repo market emerged in the 1980s when traditional banks lost market share because of a process called “disintermediation.”6 Banks, as intermediaries, traditionally sit in the middle of someone else’s prospective business, connecting borrowers and lenders, for example, and charging fees for doing so.

I do this so that I can ask one more question as a setup. If all the trouble was generated in the private sector, why do so many people blame the state for the crisis and see cuts to state spending as the way out of a private-sector mess? Answering that question is what concerns us in the rest of this chapter. The Generator: Repo Markets and Bank Runs The repo market is a part of what is called the “shadow banking” system: “shadow,” since its activities support and often replicate those of the normal banks, and “banking” in that it provides financial services to both the normal (regulated) banks and the real economy. Take paychecks, for example.

This had the effect of reversing the flow of capital to Europe as US capital came home to take advantage of these higher interest rates, which unexpectedly further stoked the stock market boom.15 After all, why put your money in Germany when you can make 15 percent buying shares in an investment trust and 7 percent in a bank deposit in the USA? The resulting capital flight placed enormous pressure on the German economy, which responded with ever-stricter austerity policies, especially, as we shall see, under Chancellor Brüning in 1930–1931. Deprived of external liquidity—all the money had gone back to the United States—bank runs in Austria and Germany were met with ever-tighter austerity policies in exchange for more loans (that failed to materialize) to stave off the inevitable default. Eventually, and tragically, as loans dried up tariffs rose, currencies were devalued, and the postwar recession became the Great Depression.


pages: 601 words: 135,202

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

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

For instance, George Selgin at the Cato Institute has written that in England, it was common to have “sealed deposits” in which gold was kept entirely on hand in a vault. Other, unsealed deposits were available for lending. BACK TO NOTE REFERENCE 9 Bank runs were a problem in England at the time. The first true bank wasn’t established in America until 1782 (Hammond 1957, 10). There had been a painful British bank run in 1772–1773. BACK TO NOTE REFERENCE 10 Hammond 1957, 11. “As fast as specie was received, it was exported to pay for goods that could not be produced at home,” Hammond writes of the colonial years.

If the bank was unable to meet the redemptions, it would be broken. As financial systems grew larger and more interconnected, broken banks could damage entire economies. As financial markets developed and became more complex, dash-for-cash runs in the face of trouble would remain a constant feature and threat. Bank runs were far from the only problem that dogged the financial system by the late 1700s, when America won its independence from England.[10] The foreign currencies and precious metals that the North American banking system had revolved around in colonial times were often available in finite quantities and served as a rigid superstructure for the nation’s fledgling commercial system.[11] The supply of money could struggle to expand to keep pace with rising demand for cash during wars, harvests, or economic boom times.

Clearinghouses could help to funnel cash out of big banking centers and into rural areas where it was needed, but the system did not always work quickly or efficiently.[35] Often, dollars became concentrated in places where they were less necessary, causing a rush for cash in places with high demand for money but an insufficient supply, which set off cascading bank runs. Financial panics struck the rickety system not only in 1873 but also in 1884, 1890, and 1893.[36] The underdeveloped banking and currency system also held back the United States’ money market, preventing it from expanding to a point where it would rival England’s. In financial journalist Walter Bagehot’s seminal 1873 book, Lombard Street: A Description of the Money Market, the author recounts that London banks held 120 million pounds of deposits around the time of publication; New York’s, just 40 million.[37] Bagehot explained in detail why that mattered: If a merchant were to use 50,000 pounds of his own money to earn 5,000 pounds over a year, he would make a 10 percent return.


pages: 258 words: 71,880

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

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

The day’s presentations included a talk by the trader who handled Bear’s commercial mortgage-backed securities. But in order to address “the environment,” as the e-mailed update had put it, Schwartz was added to the speaking roster at the last minute. No one paid much attention to the presentations until it was Schwartz’s turn to talk. Despite the looming bank run, the CEO appeared uncannily relaxed. Leaning back in his chair, he dismissed the chatter around Bear’s cash position, reasoning that companies like General Motors had faced similar rumor-mongering in the past that had turned out to be nothing but “noise.” Bear would come out all right, he told the group, and the key was to stay focused on the day-to-day business.

Bernanke addressed the subject of bankruptcy. “Can they open for business if they file?” he asked. Not in New York State, was the answer. The implications of Bear’s travails were hitting the Fed chairman hard. It was possible, he thought, to be adequately capitalized under securities laws and still face a bank run. Even if federal regulators thought you looked okay, in other words, you could still be out of business overnight. A scholar of the Great Depression, Bernanke’s thoughts turned to Credit-Anstalt, the Austrian bank that had gone bankrupt in 1931. Hoping to stabilize their teetering economy by giving confidence to bank customers, the country’s central bankers had guaranteed Credit-Anstalt’s deposits—assuring the public that even if the bank went out of business, the government would ensure that they didn’t lose their savings.

Morgan? If it’s like that for them, what is it like for Merrill Lynch or for Thornburg Mortgage?” By then the Federal Reserve Board had gathered in its headquarters in the Foggy Bottom section of Washington and approved the emergency loan. Bernanke and his colleagues hated the thought of financing a bank run with government dollars, but they knew that helping Bear survive the day would be better than allowing it to collapse. The vote was unanimous. LATER FRIDAY March 14, 2008 10:00 A.M. Calls were pouring in to Bear’s investor-relations and financial divisions. Sequestered in his office on the sixth floor, Molinaro could hardly keep up with his phone messages.


pages: 261 words: 103,244

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

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

In the euro area, the minimum reserve requirement was cut from an already ridiculous rate of 2 percent to 1 percent in January 2012, and in the UK it has long been abolished altogether such that British banks can decide for themselves how much cash and central bank reserves they want to keep as a safety margin to satisfy customers’ demand for cash. The reserve requirement determines how much the banks can expose themselves – or in practice, the public purse – to the risk of a bank run. The lower the reserves in proportion to the money that customers could withdraw at any time, the higher the risk of a bank run. This does not only affect the banks with the lowest reserves. If the reserve requirement is low, the banking system as a whole has low reserves in relation to potential withdrawals of cash. This is why the problems of any significant bank routinely threaten to put the entire financial system at risk.

The government rescued it, at great cost to taxpayers, based on the argument that a bank failure would damage the public’s trust in the banking system. As government-sponsored depositor insurance systems, central banks and the prospect of bailout packages in times of need insure the banks against a bank run, a low reserve requirement is a superb MONEY IS POWER 83 deal for private banks. Using their influence, they made sure that in Europe minimum reserve requirements were continuously reduced in the last decades of the twentieth century. In the US, they engineered policies so that the reserve requirement would cover less and less of the financial sector’s money creation activities.

Chase’s successor Hugh McCulloch extended Cooke’s monopoly. He was a close friend of Cooke’s. When McCulloch left the Treasury, he became head of Cooke’s London office. The result of the new system was a great expansion of the number of banks and of deposits but also, in short order, a series of financial crises. There were panics and bank runs in 1873, 1884, 1893 and 1907 (Rothbard 1985/2008). As a reaction to these crises, the Federal Reserve System was created in 1913 upon bankers’ initiative. At a secret meeting at Jekyll Island, Georgia in December 1910, they hammered out the essential features of the new Federal Reserve System. Bankers representing the interests of Rockefeller, J.P.


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

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

It’s why traditional bank architecture relied so heavily on imposing granite facades and pillars to project an aura of stability and permanence in front of the fragility of finance. No financial institution can function without confidence, and confidence is evanescent. It can go at any time, for rational or irrational reasons. When it goes, it usually goes quickly, and it’s hard to get back. A financial crisis is a bank run writ large, a crisis of confidence throughout the system. People get scared and want their money back, which makes the money remaining in the system less safe, which makes more people want their money back, a self-reinforcing doom loop of fear, fire sales, capital shortfalls, margin calls, and credit contractions that can produce a stampede for the exits.

You might have to sell the asset immediately to avoid default, and if others with similar assets hold similar fire sales, the price of the assets will drop further, triggering more fire sales and margin calls and defaults, and so on down the drain. If you happen to be a financial firm, your creditors might sour on your commercial paper, stop renewing your overnight repo loans, or force you to post more collateral, the modern equivalents of bank runs. That’s how panic spread after the housing bubble popped. Before the crisis of 2008, many large financial institutions were increasingly leveraged, in some cases borrowing more than $30 for every dollar of shareholder capital, affording very limited protection against losses. Increasing amounts of that leverage were in short-term debt that resembled uninsured bank deposits, the kind of runnable debt that uneasy creditors can withdraw at the first hint of danger.

The Fed poured in a further $62 billion by buying Treasuries and issued a statement encouraging banks to borrow from the discount window. Even those textbook initial steps were criticized as too much too soon. Bank of England governor Mervyn King called out the ECB and the Fed for overreacting to blips in the markets. A month later, the Bank of England would provide similar liquidity after his country’s first bank run in 150 years. Inside the Fed, several Federal Open Market Committee (FOMC) members wanted to attach harsh conditions to discount window loans to avoid moral hazard. But Ben and Tim didn’t want to add to the stigma the banks already associated with Fed loans. We didn’t want banks to stay away from the discount window; we wanted them to take the Fed’s money and lend it out.


pages: 543 words: 147,357

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

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

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

In reality, though, all depositors will not ask for their money back simultaneously, because they will not all need it at once. This assumption is the foundation of banking. However, should depositors lose confidence in a bank’s capacity to meet their demands, they may well all try to withdraw their money at the same time. This is what happens in a bank run. Banks are therefore pulled two ways: to be ultra-conservative in order to maintain depositors’ confidence, and the tremendous financial temptation, and commercial pressure, to be less conservative. If they can build up a position of leveraged lending to a portfolio of borrowers, especially in a class of assets that are appreciating in value, there are fortunes to be made for both financiers and their shareholders.

At the same time, transient, footloose shareholders demanded higher and quicker profits. Caught in this pincer, even the most conservative banks started to consider higher leverage or investing in riskier assets as the only means to survive.20 Unregulated nineteenth-century banking witnessed Northern Rock-type bank runs aplenty. Famously, Overend, Gurney and Co. went belly up in 1866, prompting the great economic and political commentator Walter Bagehot to describe its senior executives as ‘sapient nincompoops’. ‘These losses’, he wrote, ‘were made in a manner so reckless and so foolish that one would think a child who had lent money in the City of London would have lent it better.’21 The bank had borrowed short, made terrible long-term lending decisions and suffered the consequences.


pages: 524 words: 143,993

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

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

In either case, a big challenge would be to manage the contagion. An exit, particularly a disorderly one, would surely trigger bank runs and capital flight from other members. It could also cause collapses in the prices of financial and other assets. A flight to safety, to Germany or beyond the Eurozone, would occur. A decisive response from the Eurozone would be required to halt the contagion. The ECB would need to act as a lender of last resort on an unlimited scale, replacing money taken out in bank runs. Interest rates on sovereign debt would need to be capped. Above all, the commitment to keep the rest of the Eurozone together would have to be reinforced.

The programme for Cyprus had two significant features: for the first time, it imposed losses on bank creditors, notably including depositors (100 per cent losses on amounts above €100,000 in the now closed Laiki Bank and 60 per cent losses on amounts over €100,000 in the larger Bank of Cyprus), many of whom were, not coincidentally, foreign, particularly Russian; and, no less important, it inflicted controls on transfers of euros outside the country. It became even clearer than before that some euros were more equal than others. A euro deposited in a dodgy bank backed by a weak sovereign was and is not the same as a euro deposited in a solid bank supported by a strong sovereign.18 This makes the Eurozone structurally vulnerable to bank runs, since it obviously makes sense to move accounts from banks backed by weak sovereigns to banks backed by creditworthy ones, particularly at a time of crisis. It is also why informed observers concluded that some kind of banking union was essential if the Eurozone was to survive in the long run. In 2011 a far more significant event occurred than this set of crises in small countries.

If the required net inflow of foreign financing is too large, financing will become increasingly expensive and may stop altogether, possibly suddenly. That is what happened to Greece in 2010, as was noted in Chapter Two above. A ‘sudden stop’ is the consequence of a collective decision by investors that deficits are indeed unsustainable: a stop has the characteristics of a bank run, since the decision by individual investors to withdraw funding is triggered by the perception that others are doing so. ‘Sustainability’ is, therefore, ultimately a subjective, not an objective, phenomenon. As Hamlet tells us, ‘There is nothing either good or bad, but thinking makes it so.’ Unfortunately and crucially, external sustainability is asymmetrical.


pages: 701 words: 199,010

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

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

—Richard Fuld, CEO of Lehman Brothers, April 24, 2008 (in The Economist) In the 1930s, when the financial system collapsed, many people went to the bank to withdraw their money because they were scared that banks would go bankrupt and they would lose all their savings if they didn’t get there before other depositors. Banks keep a fraction of their deposits and lend the rest out, so they don’t have enough liquidity to give everyone their money on the same day. If depositors incorrectly think that a bank is in trouble, their deposit withdrawals will create a bank run and push even a very healthy bank toward failure.45 On March 6, 1933, U.S. President Franklin D. Roosevelt called for a “bank holiday” and closed every bank in the country. They remained closed until Department of the Treasury officials could inspect each institution’s ledgers. Banks in viable financial condition were primed with Treasury money and permitted to do business again.

Those in marginal condition were kept closed until they could be restored to soundness. Numerous banks that had been poorly run remained closed forever. This was one way to stop the endless cycle of banking system destruction. The Federal Deposit Insurance Corporation (FDIC) was one regulatory response to the bank runs of the 1930s. Established in the Banking Act of 1933, it insured bank deposits so that depositors would not worry about losing their savings to bank failures.46 Investment banks do not have this guarantee on their customer deposits. Bear Stearns and Lehman Brothers both failed after classic runs on the bank.

This deal, and perhaps a deal with another suitor, would have been much more likely had the U.S. guaranteed it. 45. Mozilo, Countrywide’s CEO, pointed to a Los Angeles Times article that caused depositor panic. The next day depositors withdrew $8 billion from the bank. In nine days, depositors withdrew $16.7 billion, forcing the bank out of business. 46. This didn’t prevent bank runs in 2008, partly because many depositors had more than the $100,000 account limit and partly because, even with the guarantee, people were nervous or didn’t understand the rules. The FDIC subsequently raised the account limit to $250,000. 47. Transparent, stress-tested financial statements detailing Lehman’s exposure would have helped a great deal in the weeks leading up to Lehman’s collapse.


pages: 484 words: 136,735

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

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

With each passing day, the panic spread to new countries and new institutions, but there was nothing irrational about it. The series of bank runs that almost destroyed the world economy were perfectly reasonable responses to the self-destructive actions of the U.S. Treasury, followed by other governments around the world. As Mervyn King noted six months earlier, commenting on the Northern Rock run:39 “Once a run gets started, it is rational for other people to join in.”40 Bank runs are rational because no bank has enough ready cash to repay all its deposits. Therefore, the survival of any nation’s banking system depends ultimately on a belief that government or some other unimpeachable credit will stand behind the banks.

First and foremost, he or she would realize that at a time of crisis all banks depend on some kind of implicit guarantee, from the government or from a quasi-public institution. Because no bank has enough ready cash to repay its depositors if they all decide simultaneously to withdraw their funds, there are only two ways to restore confidence among depositors once they start worrying about the loss of their money in a bank run. Either the bank must be able to raise a large amount of capital quickly to prove to its depositors that it remains solvent, or the depositors must be offered an unconditional guarantee from another institution whose solvency is beyond question. When an individual bank suffers, takeover by a bigger institution is often enough.

Then, partly through ideological dogmatism and partly political timidity, he ruled out the only viable alternative, which was temporarily to offer all American banks unlimited government guarantees. The almost inevitable result was a run on every major bank and financial institution, first in America and then around the world. And after this generalized bank run had started, the only possible outcome was the ideological U-turn that occurred in the week of October 6, 2008, when the Irish, Greek, and Danish governments, followed by the British government, then the French and German governments, and finally the U.S. Treasury, gave the temporary guarantees that they could and should have offered on September 15.


pages: 782 words: 187,875

Big Debt Crises by Ray Dalio

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

In an effort to weaken those countries, the French government encouraged the Bank of France and other French banks to withdraw the short-term credit they had provided to Austria.103 Viewing the interconnectedness of global financial institutions and the weakness of Europe as potential threats to its domestic recovery, the United States began to study methods of relieving the pressure on the German economy. On May 11, President Hoover asked Treasury Secretary Mellon and Secretary of State Henry Stimson to look into relaxing Germany’s significant payments for war debts and reparations. A proposal was not put forth until early the next month.104 In the interim, bank runs spread throughout Europe. Hungary reported bank runs starting in May, leading to the imposition of a bank holiday.105 The German government nationalized Dresdner Bank, the nation’s second largest bank, by buying its preferred shares.106 Major financial institutions failed across Romania, Latvia, and Poland.107 Germany was facing capital flight.

This foreshadowed FDR’s win in the presidential election two years later.90 First Quarter, 1931: Optimism Gives Way to Gloom as Economy Continues to Deteriorate At the start of 1931, economists, politicians, and other experts in both the US and Europe still retained hope that there would be an imminent return to normalcy because the problems still seemed manageable. The bank failures of the previous quarter were thought to be inconsequential, and not damaging to the overall financial system. By March, all business indexes were pointing to a rise in employment, wages, and industrial production. Bank runs led to a less than 10 percent drop in deposits.91 The news reflected growing economic confidence: on March 23, the New York Times declared that the depression had bottomed, and the U.S. economy was on its way back up.92 New investment trusts were being formed to profit from the expected “long recovery.”93 Optimism was also bolstered by the recovery of the stock market.

This was no exception, so a week later, the New York Fed again raised its interest rate to 3.5 percent.129 Rumors flew that the head of the New York Fed, George Harrison, had asked the French not to withdraw any more gold from the United States.130 Given the domestic difficulties, investors in the US had taken to hoarding gold and cash. This led to a series of bank runs in late 1931 that caused many banks to close and resulted in a big contraction in deposits for those remaining open. As banks’ deposits fell, they began to call their loans in order to build up their cash reserves. Homes and farms were forced into foreclosure, and several companies went bankrupt as investors did not roll loans they had previously extended.131 As money and credit contracted, the economy started to fall off a cliff.


pages: 492 words: 118,882

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

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

In the speech, Kashkari questioned the usefulness and effectiveness of the measures and tools currently at our disposal and enquired if they were sufficient to deal with a future crisis, especially since we have no idea about what form it could take. In this public discussion, he presented two scenarios: Scenario One: Individual large bank runs into trouble while the rest of the economy is sound and strong. Scenario Two: One or more banks run into trouble while there is broader weakness and risk in the global economy. In Scenario One, as per Kashkari, the aforementioned measures would allow us to deal with the failure of an individual large bank without requiring a bailout, but we don’t know that for certain as the work on these measures is far from complete (refer Table 2-1).

As such, they are responsible for ensuring how much debt is issued by commercial banks, without which they would not be able to control the supply of money. This lever of control exists in the form of capital requirements . Capital requirements play an important role in the production of debt-based money as they offer, among other things, a safeguard to a bank run. Since a bank creates money as it makes out loans, they are at risk of running out of physical currency in the case that a large number of the depositors decide to withdraw their deposits. To address this risk, commercial banks are obliged to hold some amount of currency to meet deposit withdrawals and other outflows, but using physical banknotes to carry out these large volume transactions would be extremely cumbersome.

While all the services they provide can be grouped under the umbrellas of financing and risk mitigation, the fact that regulations can vary from geography to geography (and the lack of interoperability) means that there is always a dependence on intermediaries and repetition of processes. As stated by Lamar Wilson, CEO of Fluent, a Blockchain network for financial institutions and global enterprises, “Currently, bank-run trade finance programs require a tremendous amount of resource-intensive due diligence, document collection, and processing, including coordination of remittance information. Financing rates are high for the businesses despite the low and shrinking margins for the financing provider. This is especially true at smaller banks who lack this infrastructure and must outsource these services for their larger clients," (Harris, 2016).


pages: 479 words: 113,510

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

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

He advised the company on structured credit, credit derivatives, and commodity futures. So he had theory and practice to give him insight. Gorton pointed out that the collapse of numerous hedge funds in the summer of 2007 had been triggered by “wholesale” panics, not “retail” panics like the bank runs of the 1880s, 1907, and the 1930s. Those bank runs ended when the Federal Deposit Insurance Corporation was created in 1934, insuring bank accounts up to one hundred thousand dollars. During the American banking world’s so-called Quiet Period—from 1934 to 2007—some banks failed and thrifts went under, but those did not contaminate the broader banking system.

So much was taking place in world financial markets while I sat tight, safeguarding the growth of my double cargo until my December due date. The rolling disaster rippled around the world. Insomnia kept me up late. Instead of I Love Lucy reruns, I watched the BBC as thousands of Brits queued to withdraw one billion pounds from Northern Rock, the biggest UK bank run in over a century. Markets sniff out the weakest links in the system. The cost of protecting the debt of big U.S. investment banks became the train wreck I couldn’t stop watching. I began following bank credit default swaps. These insurance securities could be used to bet for or against the survival of any financial entity—for example, the sovereign debt of Iceland or the corporate bonds of General Motors.

I’d take that back to my traders to finagle a better deal for my client. The DLJ bond desk didn’t need to pad its sizable commission at my clients’ expense. That brand of greed was one of my pet peeves about Wall Street. Dudley would later call the Bear Stearns debacle in March 2008 an old-fashioned bank run, just like that depicted in the 1946 movie It’s a Wonderful Life, played out in real time on CNBC. But it had really started in 2007, during the ten-day crisis as its hedge funds crumbled. Cayne, age seventy-three, had come under attack for being AWOL, playing a bridge tournament in Nashville instead of tending to agitated investors.


pages: 348 words: 99,383

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

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

In Chapter 18, on solutions to the financial crisis, I will share with you some ideas for dealing with this issue without losing the benefits of magnifying the economic efficiency of intermediate-size investments and small savings that banks provide. The Federal Reserve and FDIC insurance were both created to deal with the issues associated with the nature of fractional reserve banking. In the short term, these “solutions” help; in the long term, they make the problem far, far worse. FDIC insurance primarily reduces the short-term risk of bank runs because depositors perceive their deposits to be insured by the federal government. However, I previously described the fact that FDIC insurance substantially increases the credit and liquidity risk that banks take by eliminating market discipline. Based on my long-term observation of the behavior of bank executives (human nature), the existence of FDIC insurance changes the risk/return trade-offs so significantly that in the good times (when bad loans are made), bankers take risks that they would never take in a free market.

Uninsured depositors do get paid in full on the portion of their deposits that is insured (theoretically, $100,000 is insured, but often much more is insured, as discussed previously). Until the WaMu failure, the idea had been that uninsured depositors would impose discipline on a reckless bank, knowing in advance that they could lose money in the event of a bankruptcy. The reason the FDIC and the other regulators decided to pay uninsured depositors was to avoid creating a bank run. When IndyMac had failed, the FDIC had not paid uninsured depositors in full. This created lines of depositors waiting to get their money, which were broadcast endlessly by the media. The regulators were concerned that a similar display might cause the general public to panic and demand their money out of healthy banks (remember the fractional reserve issue we discussed before).

Even though it was sold to Wells Fargo (with the shareholders getting a small amount) and the FDIC did not suffer a loss, its sale was mandated by the FDIC and the Fed. If the government forces the sale of a company, that company has failed (fairly or not). The interesting aspect of this situation is that the negative consequences for the bond market could have been avoided and the risk of retail bank runs controlled. The FDIC could have simply absorbed the extra losses paid to the uninsured depositors. The FDIC’s mission is to protect the safety and soundness of the banking system. If covering uninsured depositors is necessary, it can do so, but it should let the losses fall on the insurance fund, not on innocent bondholders.


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, Black Monday: stock market crash in 1987, Bletchley Park, Bob Noyce, Bretton Woods, British Empire, buttonwood tree, Charles Babbage, Claude Shannon: information theory, Corn Laws, cotton gin, Dennis Ritchie, Douglas Engelbart, Edward Lloyd's coffeehouse, Fairchild Semiconductor, fiat currency, fixed income, floating exchange rates, flying shuttle, Fractional reserve banking, full employment, GPS: selective availability, 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, Ken Thompson, Kickstarter, Leonard Kleinrock, Marc Andreessen, Mary Meeker, Maui Hawaii, Menlo Park, Metcalfe's law, Metcalfe’s law, military-industrial complex, Mitch Kapor, Multics, packet switching, pneumatic tube, price mechanism, probability theory / Blaise Pascal / Pierre de Fermat, profit motive, proprietary trading, railway mania, RAND corporation, Robert Metcalfe, Silicon Valley, Small Order Execution System, South Sea Bubble, spice trade, spinning jenny, Steve Jobs, Suez canal 1869, supply-chain management, supply-chain management software, systems thinking, three-martini lunch, trade route, transatlantic slave trade, tulip mania, Turing machine, Turing test, undersea cable, UUNET, Wayback Machine, William Shockley: the traitorous eight

The fractional reserve banking system was anything but stable, all because too much gold was in the British banking system. England had become Spain, laden with gold and not enough to spend it on. So England devised a way to get rid of gold. It turned out, at least in my opinion, to be the wrong way. *** Bank runs and financial crises from too much gold became common: They occurred in 1825, 1847, 1857 and 1866. Think about it. In periods of inflation, money loses its value relative to the goods it is buying. This lack of faith in money causes people to move into real assets, including gold. Even though money was exchanged into gold at a fixed rate, the fear that the rate would change when the money lost value, caused depositors to ask for real gold from banks.

And, in general, we may observe, that the dearness of every thing, from plenty of money, is a disadvantage, which attends an established commerce, and sets bounds to it in every country, by enabling the poorer states to undersell the richer in all foreign markets.” The best and brightest economists of the time met in Paris in 1867, to discuss a way to have both sound money and increased international trade. They came up with a system known as the “Price specie flow.” Sounds like a case of the runs, rather than a cure for bank runs. In 1870, even though England’s economic power had already peaked (but who knew?), the bankers and government officials agreed to this system - better known as the classical gold standard - since the economists were promising them a system that would naturally balance trade and keep governments from screwing up by issuing too much or too little money.

Herbert Hoover vacuumed up whatever capital was left by increasing the top tax rate from 25 to 60 percent. In response, Franklin Roosevelt campaigned with "I pledge you, I pledge myself, to a new deal for the American people." In March 1933, just after FDR’s inauguration, unemployment hit 25 percent. After yet another bank run Roosevelt declared an 8-day banking holiday after which confidence in banks returned and deposits flowed back in. Later in 1933, the U.S. dropped the gold standard, following England, which dropped it in 1931. Unshackled, money supply could now increase and replenish banks. After a yearlong recession in 1938, New Deal spending kick-started the economy.


pages: 593 words: 189,857

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

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

The result was a run on the bank, like the famous scene in It’s a Wonderful Life when depositors rush to pull their money out of a Depression-era savings and loan. Confidence is a fragile thing. When it evaporates, it usually evaporates quickly. And it’s hard to get back once it’s lost. A financial crisis is a bank run writ large, a run on an entire financial system. People lose confidence that their money is safe—whether they’re stockholders or bondholders, institutional investors or elderly widows—so they rush to pull it out of the system, which makes the money remaining in the system even less safe, which makes everyone even less confident.

Banks under siege used to stack money in their windows to reassure depositors there was no need to run; when governments put enough “money in the window,” they can reduce the danger they’ll have to use it. The classic example is deposit insurance, Franklin Delano Roosevelt’s response to Depression-era bank runs. Since 1934, the government has guaranteed deposits at banks, so insured depositors who get worried that their bank has problems no longer have an incentive to yank out their money and make the problems worse. Of course, the banking system that FDR inherited didn’t have “collateralized debt obligations,” “asset-backed commercial paper,” or other complexities of twenty-first-century finance.

The classic example is a bank that borrows short from its depositors, who can demand their money back at any time, and lends long to businesses and homeowners. This kind of “maturity mismatch”—the use of short-term funding to finance long-term investments—is how George Bailey got into trouble in It’s a Wonderful Life, and it’s why we now have deposit insurance to avoid bank runs. But a lot of short-term loans to financial institutions can look a lot like uninsured bank deposits, and they can run when confidence goes. When creditors call in the loans and the institutions can’t recover the money they had lent to finance longer-term investments, they can fail in a hurry. This is unfortunate if it happens to a single bank, but devastating if it happens to the banking system as a whole.


pages: 361 words: 97,787

The Curse of Cash by Kenneth S Rogoff

Alan Greenspan, Andrei Shleifer, Asian financial crisis, bank run, Ben Bernanke: helicopter money, Berlin Wall, bitcoin, blockchain, Boris Johnson, Bretton Woods, business cycle, capital controls, Carmen Reinhart, cashless society, central bank independence, cryptocurrency, debt deflation, disruptive innovation, distributed ledger, Dr. Strangelove, Edward Snowden, Ethereum, ethereum blockchain, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial exclusion, financial intermediation, financial repression, forward guidance, frictionless, full employment, George Akerlof, German hyperinflation, government statistician, illegal immigration, inflation targeting, informal economy, interest rate swap, Isaac Newton, Johann Wolfgang von Goethe, Johannes Kepler, Kenneth Rogoff, labor-force participation, large denomination, liquidity trap, low interest rates, Modern Monetary Theory, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, moveable type in China, New Economic Geography, offshore financial centre, oil shock, open economy, payday loans, price stability, purchasing power parity, quantitative easing, RAND corporation, RFID, savings glut, secular stagnation, seigniorage, The Great Moderation, the payments system, The Rise and Fall of American Growth, transaction costs, unbanked and underbanked, unconventional monetary instruments, underbanked, unorthodox policies, Y2K, yield curve

In the extreme case, the government could adopt a version of the 1930s “Chicago plan,” which would essentially allow banks to issue money-like instruments only if they were 100% backed by government debt, which presumably can include central bank reserves.10 The name relates to Chicago economists Henry Simon, Frank Knight, Milton Friedman, and Irving Fisher (the last actually a Yale professor), who advocated the idea of “narrow banking” to mitigate moral hazard problems and eliminate bank runs (assuming that the government itself is fully solvent). A Chicago-type plan would mark a quantum change in the financial system and would radically reroute the way capital flows in the economy. By expanding the scope of the government’s monopoly on all retail transaction media, the government would be able to raise vast amounts of capital, essentially usurping one of the private banking system’s main funding mechanisms.

Another common practice, even more directly analogous to a Gesell tax, was to force people to hand in coins and then give them back a smaller number of coins similar in weight and content, for example, handing in four coins and getting back three.13 Many other ways can be used to implement a crude Gesell tax. At the improbable (but instructive) end of the spectrum is the idea of creating short-stick lotteries advanced by my Harvard colleague N. Gregory Mankiw, who attributes the idea to a graduate student. Mankiw proposed that the central bank run regular lotteries based on the serial numbers of currency in circulation. Notes with the losing numbers become completely worthless. The problem is that after a couple dozen lotteries, it would be pretty difficult to identify worthless notes without a tedious serial number cross-check against the official list.

Indeed, the idea that the gold standard produced spectacular stability is a fantasy and a false image of what the gold standard was really like. The gold standard era was punctuated by deep recessions (the recession of 1893 was in some ways almost as profound as the Great Depression of the 1930s). There were bank runs and long bouts of deflation. Nothing stopped governments from abandoning the gold standard when they desperately needed funding to pay for World War I. Once citizens realized that the gold standard might not go on forever, it proved extremely fragile. There is little reason to believe that a modern-day gold standard would fare any better.


pages: 471 words: 97,152

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

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

The Overheated Economy of the 1920s Leads to the Depression of the 1930s After the depression of the 1890s there was much discussion of what had happened, and eventually corrections were made that were supposed to prevent a recurrence. Notably the Federal Reserve System was created by an act of Congress in 1913 to prevent the kind of bank run that had started the depression. The act was hailed as a “fireproof credit structure”15 and a “safeguard against business depressions.” President Woodrow Wilson, upon signing the Federal Reserve Act on December 14, 1913, was almost euphoric about its ability to stabilize the economy, and he even called the act “the constitution of peace.”16 But in fact the new system did not function as well as had been hoped.

Confidence—and the economy itself—was not restored until World War II completely changed the dominant story of people’s lives, transforming the economy.39 Summing Up Depression History We have seen that the two most significant depressions in U.S. history were characterized by fundamental changes in confidence in the economy, in the willingness to press pursuit of profit to antisocial limits, in money illusion, and in changes in the perception of economic fairness. The depressions were intimately linked with these hard-to-measure variables. These two epochs may seem remote in history, and we may think that our economic institutions have improved enough to prevent such events from ever being repeated. Both depressions involved bank runs, and such runs now appear to be a thing of a past because of the establishment, in the 1930s, of comprehensive deposit insurance. The first of these depressions also preceded the founding of the U.S. central bank, the Federal Reserve System; and there has been considerable development in the theory of central banking since the second depression.

A shadow banking sector, unprotected by deposit insurance, grew up after the early 1990s in the United States, in the form of subprime lenders who supported their lending activities by issuing short-term commercial paper. Moreover, even the Federal Reserve System as it existed at the beginning of 2007 was apparently not up to the task of preventing behavior that looked very much like bank runs, as one financial institution after another failed. In response the Fed had to reinvent itself, with new lending facilities that went far beyond its original turf of depository institutions. The increasing complexity of our financial system makes it hard for economic institutions like deposit insurers or central banks to stay ahead of financial innovation.


pages: 225 words: 11,355

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

Alan Greenspan, 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, deal flow, disintermediation, diversification, fiat currency, financial deregulation, financial engineering, financial innovation, financial intermediation, fixed income, foreign exchange controls, Francis Fukuyama: the end of history, George Santayana, global reserve currency, Greenspan put, Home mortgage interest deduction, inverted yield curve, Isaac Newton, joint-stock company, junk bonds, Kickstarter, liquidity trap, London Interbank Offered Rate, long peace, low interest rates, 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, Phillips curve, plutocrats, Ponzi scheme, profit maximization, proprietary trading, 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, Suez canal 1869, systems thinking, tail risk, The Great Moderation, the long tail, the new new thing, the payments system, too big to fail, value at risk, very high income, War on Poverty, We are all Keynesians now, Y2K, yield curve

People prefer to put their money in a bank that isn’t losing money. In fact, banks that lose big sums of money, especially when it is unexpected, can be quickly brought down by a ‘‘run on the bank.’’ Depositors in these dramas rush to remove their money before the banks go bust, something that is sure to make it go bust. Bank runs brought down thousands of U.S. banks in the 1920s and 1930s, which is why the Federal Deposit Insurance Corporation (FDIC) was put in place to provide both oversight and deposit insurance to prevent them. But it’s not enough for banks to just avoid the rare disaster. Banks need to make enough money out of OPM to pay for the cost of running the payments system and other expenses.

However, the simple fact is that no private clearing house has ever collapsed during a financial crisis. The history of formal regulation is less stellar. The United States has experienced two devastating structural financial crises and several lesser ones since the Federal Reserve was set up. The Northern Rock bank run in England (the first since 1866) happened after the U.K. abolished the old clearing house ‘‘club’’ and took up formal regulation. LONDON BECOMES MONEY MARKET TO THE WORLD The result of all these accidents of history was that England became the first national economy based on credit. Nothing really new in finance has been invented since.

Borrowers walk away, leaving the bank with trash stocks. With their paper wealth wiped out, these same borrowers began defaulting on mortgages and other loans. Banks began to call in loans to raise cash, sending more customers into the tank. Soon, banks began to fail in large numbers, triggering more bank runs. Between the end of 1920 and FDR’s famous Bank Holiday of 1933, about 5,000 of America’s roughly 30,000 banks failed. Essentially, Ben Strong and the Federal Reserve Board let them fail, judging it irresponsible to bail out banks that made themselves insolvent. However, in banking, timing is everything.


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, Alan Greenspan, algorithmic trading, Andrei Shleifer, asset-backed security, availability heuristic, bank run, banking crisis, behavioural economics, Black Monday: stock market crash in 1987, 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 engineering, 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, low interest rates, margin call, Mark Zuckerberg, McMansion, Minsky moment, 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, Savings and loan crisis, short selling, Silicon Valley, Silicon Valley startup, Skype, South Sea Bubble, sovereign wealth fund, statistical model, subprime mortgage crisis, tail risk, Thales of Miletus, the long tail, transaction costs, Tunguska event, unbanked and underbanked, underbanked, Vanguard fund, web application

Society benefits, too: long-term investments can be financed far more easily because they do not require creditors to sacrifice liquidity. The downside of maturity transformation is that a lot of creditors do sometimes want their money back at the same time. The most visible manifestation of this is the bank run, with people lining up outside branches to retrieve their cash. A bank run is the moment when the magic of maturity transformation is revealed as a cheap trick. The bank doesn’t have deposits on hand to meet demand, so the customers who turn up first are the ones who get their money back. Everyone has an interest in joining the run.

Something unexpected was happening to the moneymaking machine. My very first week in the job coincided with a deposit run at Northern Rock, a British lender that came unstuck when it could no longer fund itself in the markets. Some of my earliest interviews on the beat were with people dusting off the manual on how to deal with bank runs. Organizing guide ropes inside bank branches was one tactic: better that than have people spill out onto the street, signaling to others that they should join the line. One HSBC veteran happily recounted stories of the financial crisis that gripped Asia in the late 1990s, when tellers were instructed to bring piles of cash into view to reassure people that banks were overflowing with money.

The aim of these rules is twofold: first, to make sure that banks do not get into such terrible trouble again and, second, to ensure that when there is another crisis, the bill is not passed to the taxpayer. A lot of different weapons are being deployed in the service of these objectives, and despite the cries of those who say nothing has been done to hurt the banks, they are having a powerful effect. The two most important levers that regulators have to pull are liquidity and equity. Bank runs are not the only way that creditors can bring banks to their knees. Banks borrow short term in a lot of different markets and from a lot of different sources of capital. They borrow in repurchase, or “repo,” markets, pledging securities as collateral in return for cash; they borrow from money-market funds; they use commercial paper, a short-term capital-market instrument, to raise money; and so forth.


pages: 589 words: 128,484

America's Bank: The Epic Struggle to Create the Federal Reserve by Roger Lowenstein

bank run, Bear Stearns, Berlin Wall, Bretton Woods, business cycle, capital controls, central bank independence, Charles Lindbergh, corporate governance, fiat currency, financial independence, full employment, Glass-Steagall Act, Ida Tarbell, Long Term Capital Management, low interest rates, Michael Milken, Money creation, moral hazard, off-the-grid, old-boy network, quantitative easing, The Wealth of Nations by Adam Smith, Upton Sinclair, walking around money

As Paul Warburg, one of the heroes of this story, was to observe with his trademark acuity, America’s banks resembled less an army commanded by a central staff than they did an inchoate legion of disjointed and disunited infantry. It was hardly surprising that throughout the latter half of the nineteenth century and into the early twentieth, the United States—alone among the industrial powers—suffered a continual spate of financial panics, bank runs, money shortages, and, indeed, full-blown depressions. This book tells the story of how, culminating in the days before Christmas 1913, the Federal Reserve came to be. It was not a gentle or an easy birth, nor was it swift. To Americans of the early twentieth century, especially farmers, the prospect of a central bank threatened the comfortable Jeffersonian principle of small government.

A great orator though a twice-failed candidate, Bryan had no use for a commission run by Aldrich. At any rate, the Democrats backed a very different banking reform—deposit insurance. Oklahoma, a newly admitted state, had enacted deposit insurance the previous December, with the aim of discouraging bank runs. This solution dismayed orthodox bankers, who feared that insurance would serve as an invitation to reckless banking. If depositors had no reason to seek out well-managed banks, what would motivate bankers to discipline their lending? James Laughlin, author of the 1897 Indianapolis report, reacted as did many experts—with haughty disapproval.

For instance, at Warburg’s urging, the Senate cut reserve requirements below those in the House, enabling banks to issue more loans and, again, create more money. The most controversial feature in the Senate bill was a provision for a deposit guarantee. The notion of insuring deposits as a means of forestalling bank runs had been on the margins of the debate since 1907 and, of course, was favored by Bryan. It was considered a radical step—one that would encourage imprudent banking. Nonetheless, Wall Street, which had visions of a muscular Federal Reserve that would pump up credit and arm American banks to do business overseas, preferred the Senate’s version of Glass-Owen to the House’s.


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

active measures, Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, Bernie Madoff, Black Monday: stock market crash in 1987, Black Swan, Boeing 747, Bonfire of the Vanities, break the buck, Bretton Woods, British Empire, business cycle, buy and hold, Carmen Reinhart, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, Corn Laws, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cross-border payments, currency peg, currency risk, death of newspapers, debt deflation, Deng Xiaoping, disintermediation, diversification, diversified portfolio, edge city, financial deregulation, financial innovation, Financial Instability Hypothesis, financial repression, fixed income, floating exchange rates, George Akerlof, German hyperinflation, Glass-Steagall Act, Herman Kahn, Honoré de Balzac, Hyman Minsky, index fund, inflation targeting, information asymmetry, invisible hand, Isaac Newton, Japanese asset price bubble, joint-stock company, junk bonds, large denomination, law of one price, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, low interest rates, margin call, market bubble, Mary Meeker, Michael Milken, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, new economy, Nick Leeson, Northern Rock, offshore financial centre, Ponzi scheme, price stability, railway mania, Richard Thaler, riskless arbitrage, Robert Shiller, short selling, Silicon Valley, South Sea Bubble, special drawing rights, Suez canal 1869, telemarketer, The Chicago School, the market place, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, very high income, Washington Consensus, Y2K, Yogi Berra, Yom Kippur War

Moreover it encouraged banks to make riskier loans since they were confident that they were protected against runs by the owners of the larger deposits – if these riskier loans proved profitable, the owners of the banks would benefit and if the loans went into default, the owners would not have to worry about bank runs (although the market value of their own shares might decline and even become worthless). The implosion of the bubble in Japan in the 1990s caused the value of the loans of the banks headquartered in Tokyo and Osaka and various regional centers to decline sharply below the value of their liabilities. Nevertheless, there were no bank runs; the depositors were confident that they would be made whole by the government if any of the banks were closed. Deposit insurance has limited both bank runs and contagion in the runs from one troubled bank to other banks in a neighborhood.

A guarantee fund of 20 million gulden was put together by the Austrian National Bank and the solid commercial banks; these imitations of earlier measures were of little assistance.37 Another moratorium was noted in Paris after the July Monarchy when the municipal council decreed that all bills payable in Paris between 25 July and 15 August should be extended by ten days. This moratorium sterilized the commercial paper in banking portfolios and did nothing to discourage a run by holders of notes.38 Clearing-house certificates The major device used in the United States to cope with bank runs prior to the establishment of the Federal Reserve System was the clearing-house certificate, which is a near-money substitute that was the liability of a group of large local banks. A bank subject to a run could pay the departing depositors with these certificates rather than with coin. The New York clearing-house was established in 1853 and the one in Philadelphia in 1858 after the panic of 1857.

Morgan, Chase Manhattan Bank, and the Union Bank of Switzerland to provide $3.6 billion of capital to prevent the collapse of LTCM; in exchange they acquired 90 percent of LTCM’s equity.58 These firms were large creditors of LTCM so the ‘bailout’ involved a change in the legal nature of their claim on LTCM. The Federal Reserve was concerned that if LTCM failed the markets would be paralyzed by the need to unwind its massive position in futures and options contracts and other types of derivatives. Deposit insurance Since 1934, federal deposit insurance in the United States has prevented bank runs by providing an ex ante guarantee of deposits. Initially the deposits were guaranteed up to $10,000 but gradually the ceiling on deposits was raised in stages and eventually reached $100,000 – and then $250,000 during the 2008 crisis. When large banks got into trouble, the FDIC deliberately removed all limits on the amounts of deposits covered by the guarantee to halt imminent runs and in practice it established that banks with significant deposits over $100,000 were ‘too big to fail’ (although the shareholders of these banks would probably lose all of their money).


pages: 350 words: 109,220

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

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

Instead, trust companies had to rely on clearinghouse banks to process checks written by their customers. Knickerbocker Trust Company, the Bear Stearns of its day, had lent heavily to the copper speculators. When word of that circulated, scores of depositors descended on its offices to withdraw money, the sort of bank run that was frighteningly frequent before government deposit insurance arrived. Never mind that just two weeks before, the state banking examiner had found the institution had funds sufficient to pay its depositors. On October 18, the National Bank of Commerce said it would no longer act as the intermediary between Knickerbocker and the clearinghouse, a move as devastating to Knickerbocker as JPMorgan Chase’s decision to stop “clearing” — or processing payments — for Lehman Brothers in September 2008, contributing to that venerable firm’s bankruptcy.

The institution was still in its adolescence when it confronted and failed its biggest test: misstep after misstep on the Fed’s part turned a bad late-1920s recession into the Great Depression, an indictment made by Nobel laureate Milton Friedman and collaborator Anna Schwartz, and later expanded by Ben Bernanke in his years as an academic. In the preface to a collection of his essays on the Depression, Bernanke described those years as “an incredibly dramatic episode — an era of stock market crashes, bread lines, bank runs, and wild currency speculation, with the storm clouds of war gathering ominously in the background all the while. Fascinating, and often tragic, characters abound during this period, from hapless policy makers trying to make sense of events for which their experience had not prepared them to ordinary people coping heroically with the effects of the economic catastrophe.”

“In August, it crossed into the banking system. That’s when things got really complicated,” said Donald Kohn, the Fed’s vice chairman, who had long taken comfort from what Greenspan once dubbed — in another automotive metaphor — the “spare tire” theory of finance. The spare tire theory holds that when the banks run into trouble, companies and consumers can borrow directly or indirectly in credit markets where money market funds, insurance companies, pension funds, and others lend cash. Likewise, when credit markets are tight, companies and consumers can borrow from banks. Problems in one sector are offset by the other, in short, and the economy keeps right on rolling.


pages: 263 words: 80,594

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

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

When financial markets started to seize up in 2007, banks stopped lending to one another, and “the Rock” found itself unable to access international capital markets, meaning it couldn’t pay its debts. On 13 September 2007, the news broke that Northern Rock was seeking emergency support from the Bank of England: the first UK bank run since Overend. Both bank runs resulted from an asset bubble — one in railways, the other in housing. Both Northern Rock and Overend relied on borrowing from financial markets to finance their day-to-day liabilities. Both were eventually forced to appeal to the Bank of England for help. But there were also some critical differences between the two institutions.

Adam Tooze puts it succinctly: “Without valuation these assets could not be used as collateral. Without collateral there was no funding. And if there was no funding all the banks were in trouble, no matter how large their exposure to real estate”. Retail bank runs had been a thing of the past since the introduction of deposit insurance, but what happened in 2007 was essentially a giant bank run, led by other banks, which created a liquidity crisis – the banks didn’t have enough cash to meet their current liabilities. But the fire selling that resulted rapidly turned this liquidity crisis into a solvency crisis – the banks’ debts grew larger than their assets.


pages: 453 words: 117,893

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

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

Fisher identified all great depressions as starting from a point of overindebtedness: The public psychology of going into debt for gain passes through several more or less distinct phases: (a) the lure of big prospective dividends or gains in income in the remote future; (b) the hope of selling at a profit, and realizing a capital gain in the immediate future; (c) the vogue of reckless promotions, taking advantage of the habituation of the public to great expectations; (d) the development of downright fraud, imposing on a public which had grown credulous and gullible.15 In the case of the Great Depression, the overindebtedness originated in reckless borrowing by corporations who had been encouraged by high-pressure salesmanship of investment bankers. The collapse of the debt bubble then led to a self-perpetuating vicious circle of falling asset prices, which, as Fisher knew from experience, made it hard to repay one’s debt. It led to further distressed selling, rising bankruptcies and even bank runs as loans went bad on banks’ balance sheets. He then described the process of debt-deflation, where attempts to liquidate assets in order to reduce debts become self-defeating, as the ensuing fall in prices raises the real value of debts even more. In other words, the real cost of borrowing is the nominal interest rate minus inflation, so deflation increases the cost of debt while inflation would reduce it.

He proposed that the central bank should simply increase the price level to near its 1926 level by expanding the money supply in line with his formulation of the Quantity Theory of Money. He also suggested stabilizing the financial system by providing a government guarantee of bank deposits to curb harmful and destructive bank runs. He believed that membership of the gold standard prevented the necessary monetary expansion since the dollars in circulation were constrained by the amount of gold. Dropping the gold standard would free the dollar and allow it to fall in value during a depression, which could boost exports and therefore the economy.

However, the Fed believed that further loosening of monetary policy might pump up the stock market bubble and lead to inflation. Between 1930 and 1933 the US money supply contracted by over a third, coinciding with a raft of bank failures. Between October 1930 and March 1933 there were four major bank runs. Most of these occurred between August 1931 and January 1932, when there were 1,860 bank failures and the money supply fell at an annual rate of 31 per cent. As deposits were withdrawn for fear of failure, banks had less money to lend, so the supply of credit to the economy evaporated, which led to downward pressure on output and prices.


pages: 374 words: 113,126

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

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

Fisher identified all great depressions as starting from a point of overindebtedness: The public psychology of going into debt for gain passes through several more or less distinct phases: (a) the lure of big prospective dividends or gains in income in the remote future; (b) the hope of selling at a profit, and realizing a capital gain in the immediate future; (c) the vogue of reckless promotions, taking advantage of the habituation of the public to great expectations; (d) the development of downright fraud, imposing on a public which had grown credulous and gullible.15 In the case of the Great Depression, the overindebtedness originated in reckless borrowing by corporations who had been encouraged by high-pressure salesmanship of investment bankers. The collapse of the debt bubble then led to a self-perpetuating vicious circle of falling asset prices, which, as Fisher knew from experience, made it hard to repay one’s debt. It led to further distressed selling, rising bankruptcies and even bank runs as loans went bad on banks’ balance sheets. He then described the process of debt-deflation, where attempts to liquidate assets in order to reduce debts become self-defeating, as the ensuing fall in prices raises the real value of debts even more. In other words, the real cost of borrowing is the nominal interest rate minus inflation, so deflation increases the cost of debt while inflation would reduce it.

He proposed that the central bank should simply increase the price level to near its 1926 level by expanding the money supply in line with his formulation of the Quantity Theory of Money. He also suggested stabilizing the financial system by providing a government guarantee of bank deposits to curb harmful and destructive bank runs. He believed that membership of the gold standard prevented the necessary monetary expansion since the dollars in circulation were constrained by the amount of gold. Dropping the gold standard would free the dollar and allow it to fall in value during a depression, which could boost exports and therefore the economy.

However, the Fed believed that further loosening of monetary policy might pump up the stock market bubble and lead to inflation. Between 1930 and 1933 the US money supply contracted by over a third, coinciding with a raft of bank failures. Between October 1930 and March 1933 there were four major bank runs. Most of these occurred between August 1931 and January 1932, when there were 1,860 bank failures and the money supply fell at an annual rate of 31 per cent. As deposits were withdrawn for fear of failure, banks had less money to lend, so the supply of credit to the economy evaporated, which led to downward pressure on output and prices.


pages: 365 words: 56,751

Cryptoeconomics: Fundamental Principles of Bitcoin by Eric Voskuil, James Chiang, Amir Taaki

bank run, banks create money, bitcoin, blockchain, break the buck, cashless society, cognitive dissonance, cryptocurrency, delayed gratification, en.wikipedia.org, foreign exchange controls, Fractional reserve banking, Free Software Foundation, global reserve currency, Joseph Schumpeter, market clearing, Metcalfe’s law, Money creation, money market fund, Network effects, peer-to-peer, price stability, reserve currency, risk free rate, seigniorage, smart contracts, social graph, time value of money, Turing test, zero day, zero-sum game

While the fund attempts to maintain sufficient net asset value [538] (NAV) to allow exchange a unit of the fund for one of the money, a sufficient drop in NAV will be reflected in unit price. In the case of a MMA, such losses are absorbed by money reserves. If there is insufficient reserve, either because of an unexpected level of withdrawal, or because of investment losses, the MMA fails. Failure of a MMA manifests as a bank run [539] , where some people are repaid and others not. Insufficient NAV of a MMF manifests as a uniform drop in unit price. The advantage of the MMA is that its units are more fungible [540] , though still discounted against money. The advantage of the MMF is that losses are evenly spread. It is not surprising therefore that MMAs are typically insured by the taxpayer, more tightly regulated by the state, and accounted for as bank credit.

Bank similarly did not create the offsetting credit and debt entries to obscure fraudulent money creation. Bank created these accounts for two reasons: Preclude physical transfer just to redeposit the money into Bank. Encourage redeposit into Bank as opposed to a competitor (or Borrower hoard). When Bank has insufficient reserve to satisfy withdrawals, either due to loans in default or a bank run [886] , it has only two options, default or borrow. To prevent the former, central banking [887] exists to provide the latter. This is the meaning of the term “lender of last resort ” [888] . State Banking Principle [889] provides a detailed explanation of this actual source of monetary inflation [890] .

* * * [10] https://libbitcoin.info [11] https://bitcoincore.org [12] Chapter: Dedicated Cost Principle [13] https://www.dtu.dk/english [14] https://twitter.com [15] https://libbitcoin.info [16] https://github.com/libbitcoin/libbitcoin-system/wiki/Cryptoeconomics [17] Chapter: Inflation Principle [18] Chapter: Savings Relation [19] https://en.wikipedia.org/wiki/Amir_Taaki [20] Chapter: Foreword [25] https://libbitcoininstitute.org [26] https://en.wikipedia.org/wiki/Free_Software_Foundation [27] https://www.irs.gov/charities-non-profits/charitable-organizations/exemption-requirements-501c3-organizations [28] Chapter: Value Proposition [51] https://en.wikipedia.org/wiki/Ludwig_von_Mises [52] https://en.wikipedia.org/wiki/Murray_Rothbard [53] Chapter: Inflation Principle [54] Chapter: Money Taxonomy [55] Chapter: Full Reserve Fallacy [56] Chapter: Censorship Resistance Property [57] Chapter: Depreciation Principle [83] https://en.wikipedia.org/wiki/Spherical_geometry [84] Chapter: Permissionless Principle [85] Chapter: Censorship Resistance Property [86] Chapter: Hearn Error [87] https://en.wikipedia.org/wiki/Confinity [88] Chapter: Value Proposition [89] https://en.wikipedia.org/wiki/PayPal [90] Chapter: Risk Sharing Principle [91] Chapter: Proof of Work Fallacy [92] Chapter: Side Fee Fallacy [93] Chapter: Axiom of Resistance [94] Chapter: Qualitative Security Model [95] Chapter: Pooling Pressure Risk [96] Chapter: Risk Sharing Principle [98] Chapter: Threat Level Paradox [99] https://en.wikipedia.org/wiki/Foreign_exchange_controls [100] Chapter: Risk Sharing Principle [101] Chapter: Threat Level Paradox [102] Chapter: Balance of Power Fallacy [103] Chapter: Pooling Pressure Risk [104] http://www.imf.org/external/index.htm [105] https://en.wikipedia.org/wiki/Seigniorage [106] Chapter: Threat Level Paradox [107] https://www.theatlantic.com/magazine/archive/2017/09/big-in-venezuela/534177/ [110] Chapter: Fragmentation Principle [111] Chapter: Consolidation Principle [112] Chapter: Risk Sharing Principle [115] Chapter: Risk Sharing Principle [116] Chapter: Proof of Stake Fallacy [117] Chapter: Censorship Resistance Property [118] Chapter: Axiom of Resistance [119] Chapter: Money Taxonomy [120] Chapter: Reservation Principle [121] Chapter: Blockchain Fallacy [122] Chapter: Axiom of Resistance [123] https://en.wikipedia.org/wiki/Cognitive_dissonance [124] https://en.wikipedia.org/wiki/Wikipedia:Rage_quit [125] Chapter: Dumping Fallacy [126] Chapter: Qualitative Security Model [127] Chapter: Inflation Principle [128] Chapter: Lunar Fallacy [131] Chapter: Hearn Error [132] Chapter: Value Proposition [134] Chapter: Other Means Principle [135] https://en.m.wikipedia.org/wiki/Seigniorage [136] https://www.imf.org [137] Chapter: Pooling Pressure Risk [138] Chapter: Axiom of Resistance [139] Chapter: Risk Sharing Principle [140] https://en.wikipedia.org/wiki/Seigniorage [141] Chapter: Money Taxonomy [142] Chapter: Qualitative Security Model [143] https://en.wikipedia.org/wiki/Seigniorage [144] Chapter: Hearn Error [145] Chapter: Fedcoin Objectives [146] Chapter: Public Data Principle [147] Chapter: Proof of Work Fallacy [148] Chapter: Other Means Principle [149] Chapter: Censorship Resistance Property [150] https://en.wikiquote.org/wiki/Carl_von_Clausewitz [151] Chapter: Threat Level Paradox [152] https://mises.org/library/man-economy-and-state-power-and-market/html/p/1075 [153] Chapter: Pooling Pressure Risk [154] https://www.asicboost.com/patent [155] Chapter: Axiom of Resistance [156] Chapter: Risk Sharing Principle [157] Chapter: Public Data Principle [158] Chapter: Qualitative Security Model [159] Chapter: Threat Level Paradox [160] Chapter: Cryptodynamic Principles [161] Chapter: Value Proposition [162] Chapter: Other Means Principle [174] https://coinweek.com/bullion-report/bitcoin-vs-gold-10-crystal-clear-comparisons [175] Chapter: Stability Property [176] Chapter: Proximity Premium Flaw [177] Chapter: Risk Sharing Principle [178] Chapter: Balance of Power Fallacy [181] Chapter: Threat Level Paradox [182] https://en.wikipedia.org/wiki/Anonymizer [183] Chapter: Side Fee Fallacy [184] Chapter: Social Network Principle [185] https://en.wikipedia.org/wiki/Graph_(discrete_mathematics)#Directed_graph [186] https://en.wikipedia.org/wiki/Goodwill_(accounting) [189] Chapter: Axiom of Resistance [190] Chapter: Public Data Principle [191] Chapter: Balance of Power Fallacy [192] Chapter: Cockroach Fallacy [193] https://en.wikipedia.org/wiki/Blockchain [194] https://en.wikipedia.org/wiki/Cryptography [195] https://en.wikipedia.org/wiki/Free_and_open-source_software [196] Chapter: Prisoner’s Dilemma Fallacy [201] Chapter: Axiom of Resistance [203] Chapter: Money Taxonomy [204] Chapter: Risk Sharing Principle [205] Chapter: Axiom of Resistance [206] Chapter: Zero Sum Property [207] https://en.wikipedia.org/wiki/Subsidy [208] https://en.wikipedia.org/wiki/Black_market [209] https://www.theatlantic.com/magazine/archive/2017/09/big-in-venezuela/534177 [210] Chapter: Axiom of Resistance [211] Chapter: Pooling Pressure Risk [212] Chapter: Risk Sharing Principle [213] https://en.wikipedia.org/wiki/Attack_surface [214] https://en.wikipedia.org/wiki/Foreign_exchange_controls [215] Chapter: Centralization Risk [216] https://en.m.wikipedia.org/wiki/Seigniorage [217] https://en.m.wikipedia.org/wiki/Foreign_exchange_controls [218] https://en.m.wikipedia.org/wiki/Know_your_customer [220] Chapter: Money Taxonomy [221] Chapter: Scalability Principle [222] Chapter: Risk Sharing Principle [223] Chapter: Axiom of Resistance [224] Chapter: Value Proposition [225] Chapter: Other Means Principle [226] Chapter: Money Taxonomy [227] Chapter: Axiom of Resistance [229] Chapter: Risk Sharing Principle [230] https://en.m.wikipedia.org/wiki/Inflation [231] https://en.m.wikipedia.org/wiki/Seigniorage [232] Chapter: Depreciation Principle [233] Chapter: Money Taxonomy [234] https://en.m.wikipedia.org/wiki/Subjective_theory_of_value [235] Chapter: Time Preference Fallacy [236] https://en.m.wikipedia.org/wiki/Marginal_utility [237] https://en.m.wikipedia.org/wiki/Murray_Rothbard [238] https://mises.org/library/what-has-government-done-our-money/html/p/81 [246] Chapter: Money Taxonomy [247] https://en.wikipedia.org/wiki/Foreign_exchange_controls [248] https://en.wikipedia.org/wiki/Seigniorage [249] https://www.investopedia.com/articles/personal-finance/081616/understanding-taxes-physical-goldsilver-investments.asp [250] https://en.wikipedia.org/wiki/Inflation [251] https://en.wikipedia.org/wiki/Monetary_inflation [252] https://en.wikipedia.org/wiki/Exchange_rate#Parallel_exchange_rate [261] Chapter: Reserve Currency Fallacy [262] https://wiki.mises.org/wiki/Money_substitutes [263] Chapter: Reservation Principle [264] Chapter: Money Taxonomy [265] https://en.wikipedia.org/wiki/Monetary_inflation [266] https://en.wikipedia.org/wiki/Promissory_note [273] Chapter: Fedcoin Objectives [274] Chapter: Censorship Resistance Property [275] Chapter: Axiom of Resistance [276] Chapter: Cryptodynamic Principles [277] https://en.wikipedia.org/wiki/Lender_of_last_resort [278] https://en.wikipedia.org/wiki/Free_banking [279] Chapter: Thin Air Fallacy [280] https://en.wikipedia.org/wiki/Central_bank [281] https://en.wikipedia.org/wiki/Discount_window [282] https://en.wikipedia.org/wiki/Structure_of_the_Federal_Reserve_System [283] https://www.frbdiscountwindow.org/pages/discount-rates/current-discount-rates [309] Chapter: Money Taxonomy [310] https://www.washingtonpost.com/news/wonk/wp/2013/12/16/how-tight-jeans-almost-ruined-americas-money [311] https://www.nytimes.com/2018/11/21/business/sweden-cashless-society.html [312] Chapter: Fedcoin Objectives [313] https://www.riksbank.se/en-gb/payments--cash/e-krona [314] Chapter: Reserve Currency Fallacy [315] https://en.wikipedia.org/wiki/Gold_standard [316] Chapter: Value Proposition [320] https://en.wikipedia.org/wiki/Rate_of_return [324] Chapter: Pooling Pressure Risk [328] Chapter: Risk Sharing Principle [329] https://www.federalreserve.gov/aboutthefed/bios/board/default.htm [330] Chapter: Axiom of Resistance [331] https://www.coindesk.com/uasf-revisited-will-bitcoins-user-revolt-leave-lasting-legacy [332] Chapter: Proof of Work Fallacy [337] Chapter: Efficiency Paradox [338] Chapter: Stability Property [339] Chapter: Qualitative Security Model [340] Chapter: Variance Discount Flaw [341] Chapter: Censorship Resistance Property [342] Chapter: Axiom of Resistance [343] Chapter: Pooling Pressure Risk [344] Chapter: Relay Fallacy [345] Chapter: Censorship Resistance Property [346] Chapter: Efficiency Paradox [347] http://primecoin.io [349] https://en.wikipedia.org/wiki/Paradox [351] Chapter: Zero Sum Property [352] Chapter: Pooling Pressure Risk [355] https://en.wikipedia.org/wiki/Monotonic_function [356] Chapter: Money Taxonomy [357] https://en.m.wikipedia.org/wiki/Store_of_value [358] https://en.wikipedia.org/wiki/Subjective_theory_of_value [359] https://en.wikipedia.org/wiki/Proof-of-stake [360] Chapter: Proof of Stake Fallacy [361] Chapter: Utility Threshold Property [362] Chapter: Money Taxonomy [364] Chapter: Side Fee Fallacy [365] https://en.wikipedia.org/wiki/Step_function [366] http://www.investopedia.com/terms/e/economicprofit.asp [367] Chapter: Pooling Pressure Risk [368] https://en.wikipedia.org/wiki/Time_preference [369] Chapter: Proof of Work Fallacy [370] Chapter: Balance of Power Fallacy [371] https://en.wikipedia.org/wiki/Red_herring [372] Chapter: Risk Sharing Principle [375] https://en.wikipedia.org/wiki/Zero-sum_game [376] https://en.wikipedia.org/wiki/Win-win_game [377] https://en.wikipedia.org/wiki/Chaos_theory [379] Chapter: Side Fee Fallacy [380] Chapter: Pooling Pressure Risk [381] Chapter: Zero Sum Property [382] Chapter: Threat Level Paradox [385] Chapter: Balance of Power Fallacy [386] Chapter: Proximity Premium Flaw [387] Chapter: Variance Discount Flaw [388] https://en.wikipedia.org/wiki/Economies_of_scale [389] Chapter: Axiom of Resistance [390] https://www.theatlantic.com/magazine/archive/2017/09/big-in-venezuela/534177/ [391] Chapter: Relay Fallacy [392] Chapter: Risk Sharing Principle [393] Chapter: Balance of Power Fallacy [394] https://www.federalreserve.gov [395] Chapter: State Banking Principle [396] https://en.wikipedia.org/wiki/Debasement [397] https://en.wikipedia.org/wiki/Legal_tender [398] https://en.wikipedia.org/wiki/Federal_Reserve_Note [399] Chapter: Money Taxonomy [400] https://en.wikipedia.org/wiki/Executive_Order_6102 [401] https://en.wikipedia.org/wiki/International_Monetary_Fund [404] https://en.wikipedia.org/wiki/Opportunity_cost [405] Chapter: Pooling Pressure Risk [406] Chapter: Variance Discount Flaw [407] Chapter: Axiom of Resistance [410] Chapter: Zero Sum Property [411] https://www.cs.cornell.edu/~ie53/publications/btcProcFC.pdf [413] Chapter: Pooling Pressure Risk [414] Chapter: Proximity Premium Flaw [416] https://en.wikipedia.org/wiki/Incentive_compatibility [418] Chapter: Pooling Pressure Risk [419] https://en.m.wikipedia.org/wiki/History_of_email_spam [420] Chapter: Risk Sharing Principle [423] Chapter: Pooling Pressure Risk [424] Chapter: Proximity Premium Flaw [425] Chapter: Axiom of Resistance [426] https://en.wikipedia.org/wiki/Zero-sum_game [427] Chapter: Pooling Pressure Risk [428] https://en.wikipedia.org/wiki/Closed_system [429] Chapter: Proximity Premium Flaw [430] Chapter: Variance Discount Flaw [431] https://en.wikipedia.org/wiki/Economies_of_scale [432] https://en.wikipedia.org/wiki/Subsidy [433] Chapter: Threat Level Paradox [434] http://gavinandresen.ninja/a-definition-of-bitcoin [435] https://bitcoin.org/bitcoin.pdf [436] Chapter: Cryptodynamic Principles [437] Chapter: Brand Arrogation [438] https://bitcoin.org/en/bitcoin-core [439] https://libbitcoin.info [440] Chapter: Maximalism Definition [441] Chapter: Custodial Risk Principle [443] https://en.wikipedia.org/wiki/Cryptographic_hash_function [444] Chapter: Risk Sharing Principle [446] Chapter: Money Taxonomy [447] Chapter: Cryptodynamic Principles [448] Chapter: Money Taxonomy [450] Chapter: Utility Threshold Property [451] Chapter: Money Taxonomy [452] https://en.wikipedia.org/wiki/Gresham%27s_law#Reverse_of_Gresham's_law_(Thiers'_law) [453] Chapter: Fragmentation Principle [460] Chapter: Money Taxonomy [461] https://en.wikipedia.org/wiki/Barter [462] https://en.wikipedia.org/wiki/Goods_and_services [463] Chapter: Consolidation Principle [464] Chapter: Network Effect Fallacy [465] Chapter: Dumping Fallacy [466] Chapter: Replay Protection Fallacy [467] https://en.m.wikipedia.org/wiki/Net_present_value [474] Chapter: Proof of Stake Fallacy [475] Chapter: Censorship Resistance Property [476] Chapter: Substitution Principle [478] Chapter: Consolidation Principle [479] Chapter: Side Fee Fallacy [482] Chapter: Money Taxonomy [483] Chapter: Censorship Resistance Property [484] Chapter: Axiom of Resistance [485] https://eprint.iacr.org/2017/893.pdf [486] Chapter: Energy Waste Fallacy [487] Chapter: Pooling Pressure Risk [488] Chapter: Proof of Memory Façade [489] Chapter: Energy Waste Fallacy [490] Chapter: Censorship Resistance Property [491] Chapter: Other Means Principle [495] Chapter: Cryptodynamic Principles [496] Chapter: Value Proposition [497] Chapter: Proof of Stake Fallacy [498] Chapter: Axiom of Resistance [499] Chapter: Proof of Memory Façade [500] Chapter: Credit Expansion Fallacy [501] Chapter: Money Taxonomy [502] https://en.wikipedia.org/wiki/Seigniorage [503] Chapter: State Banking Principle [504] https://www.frbdiscountwindow.org [505] https://www.fdic.gov/resources/deposit-insurance [507] Chapter: Dumping Fallacy [508] https://en.m.wikipedia.org/wiki/Hoarding_(economics) [509] Chapter: Replay Protection Fallacy [510] https://en.m.wikipedia.org/wiki/Net_present_value [511] Chapter: Consolidation Principle [515] Chapter: Depreciation Principle [516] https://mises.org/library/man-economy-and-state-power-and-market/html/p/996 [517] Chapter: Reserve Currency Fallacy [518] https://en.wikipedia.org/wiki/Foreign-exchange_reserves [519] https://en.wikipedia.org/wiki/Money_supply#United_States [520] https://en.wikipedia.org/wiki/Money_supply#Money_creation_by_commercial_banks [521] Chapter: State Banking Principle [522] https://www.federalreserve.gov/releases/h3/current/default.htm [543] Chapter: Savings Relation [544] https://en.wikipedia.org/wiki/Time_preference [545] Chapter: Unlendable Money Fallacy [548] Chapter: Production and Consumption [561] https://en.wikipedia.org/wiki/Monetary_inflation [562] Chapter: Unlendable Money Fallacy [563] https://en.m.wikipedia.org/wiki/Labor_theory_of_value [564] https://en.m.wikipedia.org/wiki/Catallactics [565] Chapter: Production and Consumption [566] Chapter: Depreciation Principle [569] Chapter: Time Preference Fallacy [570] Chapter: Labor and Leisure [571] https://en.wikipedia.org/wiki/Fractional-reserve_banking [572] Chapter: Money Taxonomy [573] Chapter: Thin Air Fallacy [574] https://en.wikipedia.org/wiki/Full-reserve_banking [602] https://en.wikipedia.org/wiki/Inflation [603] Chapter: Credit Expansion Fallacy [604] https://en.wikipedia.org/wiki/Gold_mining [605] Chapter: Time Preference Fallacy [607] Chapter: Risk Free Return Fallacy [635] https://en.wikipedia.org/wiki/Tautology_(logic) [636] Chapter: Production and Consumption [637] Chapter: Labor and Leisure [639] Chapter: Regression Fallacy [640] https://en.wikipedia.org/wiki/Seigniorage [641] https://en.wikipedia.org/wiki/Catallactics [642] Chapter: Speculative Consumption [643] https://en.wikipedia.org/wiki/Pump_and_dump [644] Chapter: Time Preference Fallacy [645] Chapter: Savings Relation [646] https://en.wikipedia.org/wiki/Use_value [647] https://en.m.wikipedia.org/wiki/Fungibility [648] Chapter: Dumping Fallacy [649] https://en.wikipedia.org/wiki/Action_axiom [650] Chapter: Production and Consumption [651] https://en.m.wikipedia.org/wiki/Goods_and_services [652] https://en.wikipedia.org/wiki/Waste [653] https://en.wikipedia.org/wiki/Murray_Rothbard [654] https://mises.org/library/man-economy-and-state-power-and-market/html/p/926 [655] Chapter: Expression Principle [656] Chapter: Time Preference Fallacy [657] Chapter: Pure Bank [658] Chapter: Reservation Principle [659] Chapter: Depreciation Principle [661] https://en.wikipedia.org/wiki/Action_axiom [662] https://en.m.wikipedia.org/wiki/Goods_and_services [663] Chapter: Depreciation Principle [664] Chapter: Labor and Leisure [665] https://en.wikipedia.org/wiki/Waste [666] Chapter: Pure Bank [667] Chapter: Reserve Definition [668] https://en.m.wikipedia.org/wiki/Dividend [677] https://en.wikipedia.org/wiki/Free_banking [678] https://en.wikipedia.org/wiki/Federal_Reserve [679] https://www.fdic.gov [680] https://en.wikipedia.org/wiki/Discount_window [681] https://en.wikipedia.org/wiki/Seigniorage [682] Chapter: Money Taxonomy [683] Chapter: Inflation Principle [684] https://en.wikipedia.org/wiki/Inflation [685] https://en.wikipedia.org/wiki/Deflation [686] Chapter: Time Preference Fallacy [687] https://en.m.wikipedia.org/wiki/Arbitrage [688] https://en.wikipedia.org/wiki/Demurrage_(currency) [689] https://en.wikipedia.org/wiki/Settlement_(finance) [690] https://en.wikipedia.org/wiki/Maturity_(finance) [691] Chapter: Depreciation Principle [692] https://en.wikipedia.org/wiki/Opportunity_cost [693] https://en.wikipedia.org/wiki/Compound_interest [699] Chapter: Savings Relation [700] Chapter: Inflation Principle [704] Chapter: Time Preference Fallacy [705] https://en.wikipedia.org/wiki/Catallactics [706] https://en.wikipedia.org/wiki/Murray_Rothbard [707] https://mises.org/library/man-economy-and-state-power-and-market/html/p/989 [708] https://en.wikipedia.org/wiki/Capital_requirement [709] Chapter: Expression Principle [715] Chapter: Depreciation Principle [726] Chapter: Savings Relation [727] Chapter: Time Preference Fallacy [732] Chapter: Depreciation Principle [733] Chapter: Full Reserve Fallacy [734] Chapter: Credit Expansion Fallacy [735] Chapter: Money Taxonomy [739] Chapter: Credit Expansion Fallacy [740] Chapter: Time Preference Fallacy [741] Chapter: Money Taxonomy [742] Chapter: Inflation Principle [756] Chapter: Speculative Consumption [757] Chapter: Regression Fallacy [758] https://en.m.wikipedia.org/wiki/Use_value [759] https://en.m.wikipedia.org/wiki/Barter [760] https://en.m.wikipedia.org/wiki/Medium_of_exchange [761] https://mises.org/library/human-action-0/html/pp/778 [762] Chapter: Money Taxonomy [763] https://en.m.wikipedia.org/wiki/Commodity [764] https://en.m.wikipedia.org/wiki/Tautology_(logic) [765] Chapter: Money Taxonomy [766] https://en.wikipedia.org/wiki/Currency [767] https://wiki.mises.org/wiki/Money_substitutes [779] Chapter: Credit Expansion Fallacy [780] https://en.wikipedia.org/wiki/Promissory_note [788] https://en.wikipedia.org/wiki/Legal_tender [789] https://en.wikipedia.org/wiki/Seigniorage [790] Chapter: Stability Property [791] https://en.wikipedia.org/wiki/Fiat_money [797] https://en.wikipedia.org/wiki/Monetary_inflation [798] https://en.wikipedia.org/wiki/Purchasing_power [799] Chapter: Inflation Principle [803] https://en.wikipedia.org/wiki/Commodity_money [808] https://wiki.mises.org/wiki/Money_substitutes [809] https://financial-dictionary.thefreedictionary.com/Contractual+Claim [810] Chapter: Debt Loop Fallacy [811] https://en.wikipedia.org/wiki/Securitization [812] https://en.wikipedia.org/wiki/Banknote [813] https://en.wikipedia.org/wiki/Gold_certificate [814] https://en.wikipedia.org/wiki/Representative_money [815] https://www.investopedia.com/terms/e/electronic-money.asp [816] Chapter: Regression Fallacy [819] https://en.wikipedia.org/wiki/Counterfeit_money [823] Chapter: Cryptodynamic Principles [824] https://en.wikipedia.org/wiki/Currency [825] Chapter: Credit Expansion Fallacy [826] Chapter: Reserve Definition [827] https://wiki.mises.org/wiki/Regression_theorem [828] Chapter: Money Taxonomy [829] https://en.m.wikipedia.org/wiki/Use_value [830] https://en.m.wikipedia.org/wiki/Barter [831] https://mises.org/library/human-action-0/html/pp/778 [833] Chapter: Collectible Tautology [837] Chapter: Depreciation Principle [838] Chapter: Savings Relation [843] https://en.wikipedia.org/wiki/Risk-free_interest_rate [844] Chapter: Credit Expansion Fallacy [855] Chapter: Full Reserve Fallacy [856] https://en.wikipedia.org/wiki/Representative_money [857] Chapter: Credit Expansion Fallacy [858] https://en.wikipedia.org/wiki/Inflation [860] https://wiki.mises.org/wiki/Money_substitutes [861] Chapter: Money Taxonomy [874] https://en.m.wikipedia.org/wiki/Talking_past_each_other [875] https://en.m.wikipedia.org/wiki/Use_value [876] Chapter: Value Proposition [877] https://en.m.wikipedia.org/wiki/Metallism [878] Chapter: Regression Fallacy [879] https://en.m.wikipedia.org/wiki/Chartalism [880] Chapter: Debt Loop Fallacy [886] https://en.wikipedia.org/wiki/Bank_run [887] https://en.wikipedia.org/wiki/Central_bank [888] https://en.wikipedia.org/wiki/Lender_of_last_resort [889] Chapter: State Banking Principle [890] https://en.wikipedia.org/wiki/Monetary_inflation [891] https://en.wikipedia.org/wiki/Fisher_equation [892] https://en.wikipedia.org/wiki/Monetary_inflation [893] Chapter: Depreciation Principle [894] Chapter: Money Taxonomy [895] https://en.wikipedia.org/wiki/Seigniorage [897] Chapter: Inflation Principle [898] https://en.wikipedia.org/wiki/Inflation [899] Chapter: Time Preference Fallacy [901] Chapter: Speculative Consumption [905] https://medium.com/@paulbars/magic-internet-money-how-a-reddit-ad-made-bitcoin-hit-1000-and-inspired-south-parks-art-b414ec7a5598 [906] Chapter: Money Taxonomy [907] Chapter: Depreciation Principle [908] Chapter: Stability Property [909] https://www.fool.com/investing/2017/05/25/could-the-price-of-bitcoin-go-to-1-million.aspx [910] https://en.wikipedia.org/wiki/Gross_world_product [911] https://medium.com/@100trillionUSD/modeling-bitcoins-value-with-scarcity-91fa0fc03e25 [912] Chapter: Stock to Flow Fallacy [913] Chapter: Reservation Principle [914] Chapter: Reserve Currency Fallacy [915] https://en.wikipedia.org/wiki/Catallactics [916] https://mises.org/library/man-economy-and-state-power-and-market/html/p/949 [917] Chapter: Money Taxonomy [918] Chapter: Credit Expansion Fallacy [919] Chapter: Time Preference Fallacy [920] https://en.wikipedia.org/wiki/Central_bank [921] Chapter: State Banking Principle [922] https://en.wikipedia.org/wiki/Settlement_(finance) [923] Chapter: Debt Loop Fallacy [924] https://en.wikipedia.org/wiki/Money_supply#United_States [931] Chapter: Permissionless Principle [932] https://en.wikipedia.org/wiki/Seigniorage [933] https://voxeu.org/index.php?


pages: 632 words: 159,454

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

accounting loophole / creative accounting, Alan Greenspan, anti-communist, Asian financial crisis, asset-backed security, Atahualpa, balance sheet recession, bank run, banking crisis, Bear Stearns, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, California gold rush, capital controls, Carmen Reinhart, central bank independence, centre right, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, currency manipulation / currency intervention, Deng Xiaoping, discovery of the americas, Etonian, eurozone crisis, fiat currency, financial engineering, financial innovation, fixed income, floating exchange rates, foreign exchange controls, Francisco Pizarro, full employment, German hyperinflation, Glass-Steagall Act, guns versus butter model, hiring and firing, income inequality, invisible hand, Isaac Newton, it's over 9,000, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, land bank, liberal capitalism, low interest rates, market bubble, money: store of value / unit of account / medium of exchange, moral hazard, new economy, Nixon triggered the end of the Bretton Woods system, oil shock, plutocrats, Ponzi scheme, price mechanism, quantitative easing, rolodex, Ronald Reagan, South Sea Bubble, subprime mortgage crisis, Suez canal 1869, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the market place, The Wealth of Nations by Adam Smith, too big to fail, War on Poverty, Yom Kippur War

The panic created more panic in a process Krugman said was similar to a microphone in an auditorium generating a ‘feedback loop’: ‘sounds picked up by the microphone are amplified by the loudspeakers’.22 These sounds are then amplified and increased until a deafening noise is created. The idea that a panic creates its own momentum is implicit in the phenomenon of a ‘bank run’, in which the prospect of a bank collapse actually causes this to happen, as depositors, doubtful of a bank’s solvency, remove their deposits, thereby damaging the bank. The feedback loop or bank run is essentially a circular process: it might be called a vicious circle. In the case of Thailand, the loss of investor confidence and the ensuing collapse in the value of the baht forced the central bank of Thailand to increase interest rates to defend the currency.

Richards, the Deputy Governor of the Bank, remembered that ‘on Monday morning [12 December] the storm began, and till Saturday night it raged with an intensity that it is impossible for me to describe’.14 During that month, sixty county banks failed, more than half of them collapsing as a consequence of the failures of the London bank Pole & Co. and of Wentworth & Co., a leading Yorkshire bank. On 14 December, Pole & Co. stopped payment, which put forty of its correspondent county banks out of business.15 Pole & Co. had been put under pressure by an old-fashioned bank run, when depositors simply withdrew their money from the bank. The bank failures were only the last development of what had been a tumultuous year. The South American mining stocks also collapsed in dramatic fashion. One man caught up in the excitement of the stock market bubble was the young Benjamin Disraeli, a twenty-year-old Jewish adventurer, determined to make a name for himself in literature.

The panic had seen banks, fearful for their own solvency, cashing in their banknotes for gold at the Bank of England and then, notoriously, refusing to supply their own customers with gold. This double standard aroused the ire of the young Cambridge economist. ‘Our system’, he wrote, ‘was endangered, not by the public running on the banks, but by the banks running on the Bank of England.’ As a result of this ‘internal run’, the central bank’s gold reserves had fallen from £17.5 million to £11 million in three days.41 The predicament of the banks, as described by Patrick Shaw Stewart, was acute. The ‘main difficulty in two words’, as this clever young banker saw it, was ‘to prop up those big houses who have debts owing from Germany which will never be paid, and, if they go under, to prevent the whole City coming down like a pack of cards’.42 The public, once the banks had suspended gold payments for customers, received paper money, notes issued by the British Treasury for everyday purposes, with denominations of £1 and 10 shillings (50p in modern terms).


pages: 488 words: 144,145

Inflated: How Money and Debt Built the American Dream by R. Christopher Whalen

Alan Greenspan, Albert Einstein, bank run, banking crisis, Bear Stearns, Black Swan, book value, Bretton Woods, British Empire, business cycle, buy and hold, California gold rush, Carl Icahn, Carmen Reinhart, central bank independence, classic study, commoditize, conceptual framework, Cornelius Vanderbilt, corporate governance, corporate raider, creative destruction, cuban missile crisis, currency peg, debt deflation, falling living standards, fiat currency, financial deregulation, financial innovation, financial intermediation, floating exchange rates, Ford Model T, Fractional reserve banking, full employment, Glass-Steagall Act, global reserve currency, housing crisis, interchangeable parts, invention of radio, Kenneth Rogoff, laissez-faire capitalism, land bank, liquidity trap, low interest rates, means of production, military-industrial complex, Money creation, money: store of value / unit of account / medium of exchange, moral hazard, mutually assured destruction, Nixon triggered the end of the Bretton Woods system, non-tariff barriers, oil shock, Paul Samuelson, payday loans, plutocrats, price stability, pushing on a string, quantitative easing, rent-seeking, reserve currency, Ronald Reagan, Savings and loan crisis, special drawing rights, Suez canal 1869, Suez crisis 1956, The Chicago School, The Great Moderation, too big to fail, trade liberalization, transcontinental railway, Upton Sinclair, women in the workforce

Indeed, my recent book, Crisis Economics: A Crash Course in the Future of Finance (The Penguin Press HC, 2010) shows that financial crises and economic crises driven by irrational exuberance of the financial system and the private sector—unrelated to public policies—existed for centuries before fiscal deviant sovereign and central banks distorted private-sector incentives. Markets do fail, and they do fail regularly in irrationally exuberant market economies; that is the source of the role of central banks and governments in preventing self-fulfilling and destructive bank runs and collapses of economic activity via Keynesian fiscal stimulus in response to collapse in private demand. The fact that these monetary policies and fiscal policies may eventually become misguided—creating moral hazard and creating large fiscal deficits and debt—does not deny the fact that private market failures—independent of misguided policies—triggered asset and credit bubbles that triggered a public rescue response.

Rothbard described the scene facing Cleveland in that terrible year: Poor Grover Cleveland, a hard money Democrat, assumed the presidency in the middle of this monetary crisis. Two months later, the stock market collapsed, and a month afterward, in June 1893, distrust of the fraction reserve banks led to massive bank runs and failures throughout the country. Once again, however, many banks, national and state, especially in the West and South, were allowed to suspend specie payments. The panic of 1893 was on.13 Despite long speeches by Bryan and other pro-silver members of the House, on August 28, 1893, the lower chamber voted 239–108 to repeal the Sherman Act.

“It was this interpretation of the episode that provided the prime impetus for the monetary reform movement that culminated in the Federal Reserve Act.”19 The Crisis of 1907 One of the key events that drove the mounting public demand for monetary reform was the Crisis of 1907, an event that was a century in the making but was also the result of a growing economy that had far outgrown its financial system. Unlike previous panics, the troubles started in March, not during the autumn farm harvest season, and would last the entire year and beyond. The New York Stock Exchange went into a drastic decline, leading to public panic and depositor runs on banks. These bank runs, in turn, led to large-scale liquidations of “call loans,” short-term loans used to finance stock market purchases, causing further declines in stock prices and widespread insolvency for businesses and individuals. Because the reaction to crisis by banks and the entire financial system was to limit the availability of deposits when a liquidity run occurred, the flow of payments through the U.S. economy slowed, causing personal and commercial insolvencies to soar.


pages: 511 words: 151,359

The Asian Financial Crisis 1995–98: Birth of the Age of Debt by Russell Napier

Alan Greenspan, Asian financial crisis, asset allocation, bank run, banking crisis, banks create money, Berlin Wall, book value, Bretton Woods, business cycle, Buy land – they’re not making it any more, capital controls, central bank independence, colonial rule, corporate governance, COVID-19, creative destruction, credit crunch, crony capitalism, currency manipulation / currency intervention, currency peg, currency risk, debt deflation, Deng Xiaoping, desegregation, discounted cash flows, diversification, Donald Trump, equity risk premium, financial engineering, financial innovation, floating exchange rates, Fractional reserve banking, full employment, Glass-Steagall Act, hindsight bias, Hyman Minsky, If something cannot go on forever, it will stop - Herbert Stein's Law, if you build it, they will come, impact investing, inflation targeting, interest rate swap, invisible hand, Japanese asset price bubble, Jeff Bezos, junk bonds, Kickstarter, laissez-faire capitalism, lateral thinking, Long Term Capital Management, low interest rates, market bubble, mass immigration, means of production, megaproject, Mexican peso crisis / tequila crisis, Michael Milken, Money creation, moral hazard, Myron Scholes, negative equity, offshore financial centre, open borders, open economy, Pearl River Delta, price mechanism, profit motive, quantitative easing, Ralph Waldo Emerson, regulatory arbitrage, rent-seeking, reserve currency, risk free rate, risk-adjusted returns, Ronald Reagan, Savings and loan crisis, savings glut, Scramble for Africa, short selling, social distancing, South China Sea, The Wealth of Nations by Adam Smith, too big to fail, yield curve

One day in that period someone came to see me in the glass koala to tell me that there were queues at the banks, bank runs had begun and the markets had concluded that it was the end for the Hong Kong dollar’s link to the US dollar. Well, if the end had come, I thought I had better go and see it. I went downstairs and walked through Admiralty and stopped at every bank I could find. What I saw were indeed the large queues of people that I had been told about. However, it was not a bank run. Yes, there were people withdrawing their Hong Kong dollar deposits and switching to US dollar deposits. However, there were also plenty of local people who were switching from US dollars to Hong Kong dollars given the very attractive interest rates then on offer.

It was not disclosed whether the owner had been receiving a monetary yield on the dress over the course of their ownership. Part Three: Devaluation and crisis The Timeless Explosion of Fantasy’s Dream 3 July 1997, Thailand When the controlling shareholder of the largest commercial bank in Thailand publicly forecasts bank runs, times are not normal. This is exactly what Chatri Sophapanich did on Wednesday, 18 June. This was the clearest possible indication that the financial system could not survive a deflation and thus the authorities would have to opt for the only other alternative – a devaluation. The tumble in the market up to that date had been caused by a growing belief that the Thai government was prepared to follow the deflationary option.

A portfolio investor who did not expect those short-term loans to be rolled over could expect very large capital outflows to be driven by bankers, and who really knew when that might end. There was a clear incentive for portfolio investors to use the liquidity available in the financial markets to exit their exposure to Asia before the bankers were able to do so. What was happening in Asia was in effect a modern form of a bank run involving foreign bankers and portfolio investors instead of bank depositors. It had been a similar problem that had impacted Mexico in 1995 and Newt Gingrich, then speaker of the US House of Representatives, had described as “the first crisis of the 21st century”. It was indeed true that the role of portfolio investors, in a new era of free movement of capital, made this crisis very different from the others that the IMF had dealt with since its inception in 1945.


pages: 248 words: 57,419

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

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

Contents Preface Chapter 1: How Credit Slipped Its Leash Opening Pandora’s Box Constraints on the Fed and on Paper Money Creation Fractional Reserve Banking Run Amok Fractional Reserve Banking Commercial Banks The Broader Credit Market: Too Many Lenders, Not Enough Reserves Credit without Reserves The Flow of Funds The Rest of the World Notes Chapter 2: The Global Money Glut The Financial Account How It Works What Percentage of Total Foreign Exchange Reserves Are Dollars? What to Do with So Many Dollars? What about the Remaining $2.8 Trillion?

EXHIBIT 1.3 Currency Outside Banks Source: Federal Reserve, Flow of Funds Although this new paper money was no longer backed by gold (or by anything at all), it still served as the foundation upon which new credit could be created by the banking system. Fifty trillion dollars worth of credit could not have been erected on the 1968 base of 44 billion gold-backed dollars. Fractional Reserve Banking Run Amok The other constraint on credit creation at the time the Federal Reserve was established was the requirement that banks hold reserves to ensure they would have sufficient liquidity to repay their customers’ deposits on demand. The Federal Reserve Act specified that banks must hold such reserves either in their own vaults or else as deposits at the Federal Reserve.

In order to understand how reserve requirements limited credit creation, it is first necessary to understand how credit is created through Fractional Reserve Banking. Fractional Reserve Banking Most banks around the world accept deposits, set aside a part of those deposits as reserves, and lend out the rest. Banks hold reserves to ensure they have sufficient funds available to repay their customers’ deposits upon demand. To fail to do so could result in a bank run and possibly the failure of the bank. In some countries, banks are legally bound to hold such reserves, while in others they are not. A banking system in which banks do not maintain 100 percent reserves for their deposits is known as a system of fractional reserve banking. In such a system, by lending a multiple of the reserves they keep on hand, banks are said to create deposits.


pages: 247 words: 60,543

The Currency Cold War: Cash and Cryptography, Hash Rates and Hegemony by David G. W. Birch

"World Economic Forum" Davos, Alan Greenspan, algorithmic management, AlphaGo, bank run, Big Tech, bitcoin, blockchain, Bretton Woods, BRICs, British Empire, business cycle, capital controls, cashless society, central bank independence, COVID-19, cross-border payments, cryptocurrency, Diane Coyle, disintermediation, distributed ledger, Donald Trump, driverless car, Elon Musk, Ethereum, ethereum blockchain, facts on the ground, fault tolerance, fiat currency, financial exclusion, financial innovation, financial intermediation, floating exchange rates, forward guidance, Fractional reserve banking, global reserve currency, global supply chain, global village, Hyman Minsky, information security, initial coin offering, Internet of things, Jaron Lanier, Kenneth Rogoff, knowledge economy, M-Pesa, Mark Zuckerberg, market clearing, market design, Marshall McLuhan, mobile money, Money creation, money: store of value / unit of account / medium of exchange, moral hazard, Network effects, new economy, Northern Rock, one-China policy, Overton Window, PalmPilot, pattern recognition, Pingit, QR code, quantum cryptography, race to the bottom, railway mania, ransomware, Real Time Gross Settlement, reserve currency, Satoshi Nakamoto, seigniorage, Silicon Valley, smart contracts, social distancing, sovereign wealth fund, special drawing rights, subscription business, the payments system, too big to fail, transaction costs, Vitalik Buterin, Washington Consensus

Bearing in mind that ‘local’ means something different in the virtual and mundane cases: in the physical world, community is rooted in geography, but in the virtual world we each belong to many communities Technology is not a barrier to any of these options, to central banks or to anyone else. The idea of a central bank running something like M-Pesa but for citizens is hardly far-fetched. There are tens of millions of M-Pesa users in Kenya, and Facebook can manage well over a couple of billion accounts, so I am sure the Bank of England could download an app from somewhere to run a few million accounts for post-Brexit Britain.

Non-bank financial institutions in particular would benefit from being able to hold funds in central bank money as opposed to in the form of an uninsured bank account. Incidentally, Dyson and Hodgson (2016) remark that the existence of digital fiat (as we will see in chapter 6) might well exacerbate bank runs, as people, for whatever reason, retreat from other forms of liquidity to risk-free central bank money. The existence of risk-free digital currency in the United Kingdom could plausibly lead to an inflow of funds from foreign banks in sterling digital cash, and that, in turn, could push up exchange rates.

Design features such as size limits on payments in and holdings of CBDC would reduce but not eliminate these concerns. An account-based CBDC – with payments through the transfer of claims recorded on an account – could increase risks to financial intermediation. It would raise funding costs for deposit-taking institutions and facilitate bank runs during periods of distress. Again, careful design and accompanying policies should limit these risks, but they will not completely erase them. The ECB reckon that introducing this type of CBDC to the eurosystem would mean going from the 10,000 accounts it has now to perhaps half a billion.36 This speech caught my attention because, as you will have deduced from part 1 of this book, I think Lagarde is right to mention state-backed tokens as an option.


pages: 597 words: 172,130

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

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

President Woodrow Wilson, by contrast, wanted clearer political control and more centralization—he figured the institution would have democratic legitimacy only if political appointees in Washington were put in charge. The Senate, meanwhile, dabbled with approaches that would put the Federal Reserve even more directly under the thumb of political authorities, with the regional banks run by political appointees as well. But for all the apparent disagreement in 1913, there were some basic things that most lawmakers seemed to be in harmony about: There needed to be a central bank to backstop the banking system. It would consist of decentralized regional banks. And its governance would be shared—among politicians, bankers, and agricultural and commercial interests.

The banking crisis spread to Europe when Credit-Anstalt, one of Vienna’s largest and most important banks, failed spectacularly in May 1931, as years of lending for questionable projects caught up with it. The Austrian government guaranteed the bank’s deposits—and suddenly found its own creditworthiness in question. The global bank run was on. If Credit-Anstalt could collapse, what about similarly overextended banks in Amsterdam and Warsaw? Or in Frankfurt and Munich? When large-scale withdrawals began at the major German banks, the Reichsbank was in an impossible position. A collapse of the German banking system would be a catastrophe for the economy.

For the past several weeks, Northern Rock PLC, a bank based in the North East of England with £100 billion in assets, had been in crisis. Its business was to issue mortgages, which would then be packaged and sold on financial markets—and since August, mortgage securities had been toxic to global investors. Northern Rock faced a cash crunch, as depositors discovered just how bad its situation was, a classic bank run. Television news programs showed ominously long lines of Northern Rock customers waiting to pull their deposits. “You don’t want to be the ones in the end of the queue that the money’s run out,” an uncertain customer said to the cameras outside a branch in Reading. In a palatial Moorish hall, the governor of the Bank of England and the chancellor of the exchequer watched from afar—on TV, just like many of those Northern Rock customers determined not to be in the end of the queue when the money ran out.


pages: 417 words: 97,577

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

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

In the summer of 2007, long lines of depositors started forming outside the bank Northern Rock in London. It was the first bank run in Britain since 1866. Ironically, the panic started when the Bank of England said Northern Rock was in fine shape and that it would stand by the bank. Problems can only be believed when they are officially denied. Immediately customers were alerted to problems and demanded the return of their deposits.34 Every depositor was behaving in a perfectly rational way, yet when all of them showed up to get their cash at the same time, they were causing the very bankruptcy they sought to avoid. (A bank run happens when customers try to withdraw more money from the bank than the bank can provide.

(A bank run happens when customers try to withdraw more money from the bank than the bank can provide. Banks do not keep all customer deposits available in cash for immediate withdrawal, and instead the money is lent out.) Mervyn King, governor of the Bank of England, once noted that it may not be rational to start a bank run, but it is rational to participate in one once it has started. It is illogical for you not to pull your money out of a bank when you're worried about the bank's solvency, but it is also illogical for everyone to pull their money at the same time, as that itself brings the bank down. The idea of the fallacy of composition applies in the field of energy as well.

When Morgan died, the New York Stock Exchange closed until noon in his honor; it had previously only been closed to honor the passing of kings and presidents.1 He was the “boss of bosses” during the Gilded Age, and he singlehandedly saved the nation from economic collapse during the Panic of 1907. The Panic arose when the New York Stock Exchange fell 50% and bank runs ensued across the country. Morgan devised a plan to shore up the banking system with his personal money, and cash from wealthy friends and institutions. He provided liquidity to the country when America's own treasury failed. This outraged the nation – how could one man have gained such immense power and control?


pages: 328 words: 96,678

MegaThreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them by Nouriel Roubini

"World Economic Forum" Davos, 2021 United States Capitol attack, 3D printing, 9 dash line, AI winter, AlphaGo, artificial general intelligence, asset allocation, assortative mating, autonomous vehicles, bank run, banking crisis, basic income, Bear Stearns, Big Tech, bitcoin, Bletchley Park, blockchain, Boston Dynamics, Bretton Woods, British Empire, business cycle, business process, call centre, carbon tax, Carmen Reinhart, cashless society, central bank independence, collateralized debt obligation, Computing Machinery and Intelligence, coronavirus, COVID-19, creative destruction, credit crunch, crony capitalism, cryptocurrency, currency manipulation / currency intervention, currency peg, data is the new oil, David Ricardo: comparative advantage, debt deflation, decarbonisation, deep learning, DeepMind, deglobalization, Demis Hassabis, democratizing finance, Deng Xiaoping, disintermediation, Dogecoin, Donald Trump, Elon Musk, en.wikipedia.org, energy security, energy transition, Erik Brynjolfsson, Ethereum, ethereum blockchain, eurozone crisis, failed state, fake news, family office, fiat currency, financial deregulation, financial innovation, financial repression, fixed income, floating exchange rates, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, future of work, game design, geopolitical risk, George Santayana, Gini coefficient, global pandemic, global reserve currency, global supply chain, GPS: selective availability, green transition, Greensill Capital, Greenspan put, Herbert Marcuse, high-speed rail, Hyman Minsky, income inequality, inflation targeting, initial coin offering, Intergovernmental Panel on Climate Change (IPCC), Internet of things, invention of movable type, Isaac Newton, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, junk bonds, Kenneth Rogoff, knowledge worker, Long Term Capital Management, low interest rates, low skilled workers, low-wage service sector, M-Pesa, margin call, market bubble, Martin Wolf, mass immigration, means of production, meme stock, Michael Milken, middle-income trap, Mikhail Gorbachev, Minsky moment, Modern Monetary Theory, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Mustafa Suleyman, Nash equilibrium, natural language processing, negative equity, Nick Bostrom, non-fungible token, non-tariff barriers, ocean acidification, oil shale / tar sands, oil shock, paradox of thrift, pets.com, Phillips curve, planetary scale, Ponzi scheme, precariat, price mechanism, price stability, public intellectual, purchasing power parity, quantitative easing, race to the bottom, Ralph Waldo Emerson, ransomware, Ray Kurzweil, regulatory arbitrage, reserve currency, reshoring, Robert Shiller, Ronald Reagan, Salesforce, Satoshi Nakamoto, Savings and loan crisis, Second Machine Age, short selling, Silicon Valley, smart contracts, South China Sea, sovereign wealth fund, Stephen Hawking, TED Talk, The Great Moderation, the payments system, Thomas L Friedman, TikTok, too big to fail, Turing test, universal basic income, War on Poverty, warehouse robotics, Washington Consensus, Watson beat the top human players on Jeopardy!, working-age population, Yogi Berra, Yom Kippur War, zero-sum game, zoonotic diseases

After three years of legislative wrangling, in 1913, the 63d Congress passed Public Law 63-43, “An Act to Provide for the Establishment of Federal Reserve Banks, to Furnish an Elastic Currency, to Afford Means of Rediscounting Commercial Paper, to Establish a More Effective Supervision of Banking in the United States, and for Other Purposes.”6 President Wilson signed the Act in December 1913, making the United States the last major economy to create a central bank. It replaced financier J. P. Morgan as the nation’s pillar of economic strength and financial stability after another bank run, in 1908, revealed the weakness and instability of a system without a central bank. The initial mandate of the Fed was only to maintain the stability of the American banking system. There were two ways to guard against repeated and destructive bank runs: first, to provide deposit insurance to every bank customer, and second, to create a lender of last resort that could help maintain the money supply and stable prices. Initially, the Fed was supposed to perform both functions; but later, in 1933, Congress created the Federal Deposit Insurance Corporation, or FDIC, to take over the former.

Yet that narrative actually feeds a mega debt supercycle that will pummel all our assumptions about wealth preservation and growth. When recessions or financial crises occur, macroeconomists always try to guide economies clear of a Great Depression. No one wants a repeat of the 1930s. Countless movies and books have documented that terrible time, from breadlines and bank runs to ruined investors leaping from window ledges on Wall Street. In an economist’s lexicon, the Depression saw deflation at its ugliest. Although markets were already unsettled, the stock market crash on October 24, 1929, dubbed Black Thursday, marked the start of the Great Depression. In an instant, fortunes vanished.

If central banks alter the role of banks, investors in the financial sector will pay a stiff price, never mind the consequences for industries built up to service banks. The second systemic risk: for banks that hold on to deposits in normal times, a financial panic could trigger catastrophe. Depositors seeking safety would race to move their bank deposits into their central bank accounts, triggering bank runs. Less obvious pitfalls lurk. They sound arcane but the consequences could produce convulsive financial results. Suppose a severe recession drives real interest rates below zero. If a bank charges interest on deposits, instead of paying interest, consumers can say thanks very much, we’ll store the cash in mattresses and skip the interest payment.


pages: 100 words: 31,338

After Europe by Ivan Krastev

affirmative action, bank run, Berlin Wall, Brexit referendum, central bank independence, classic study, clean water, conceptual framework, creative destruction, deindustrialization, Donald Trump, eurozone crisis, failed state, Fall of the Berlin Wall, Francis Fukuyama: the end of history, illegal immigration, job automation, mass immigration, meritocracy, moral panic, open borders, post-work, postnationalism / post nation state, public intellectual, Silicon Valley, Slavoj Žižek, The Brussels Effect, too big to fail, Wolfgang Streeck, World Values Survey, Y Combinator

What is necessary is that five years from now Europeans are capable of traveling freely in Europe, the euro is on track to survive as the common currency of at least some of the member states, and citizens are able both to elect their governments freely and to sue them in Strasbourg’s European Court of Human Rights. “Who speaks of victory?” asks the great German poet Rainer Maria Rilke. “To endure is all.” But even enduring will not be easy. If the union collapses, the logic of its fragmentation will be that of a bank run and not of a revolution. The EU’s implosion does not have to result from a victory of “exiters” over “remainers” in state referenda; it will more likely be an unintended consequence of the union’s long-term dysfunction (or perceived dysfunction), compounded by a misreading by elites of national political dynamics.

What I argue, instead, is that in a political construction like the EU, where you have a lot of common policies, you have far fewer common politics. Where nobody can prevent member states voting on issues that can dramatically affect other states in the union, an explosion of national referendums is the fastest way to make the union ungovernable. Such an explosion could even trigger a “bank run” that could catalyze the breakup of the union. Europe can’t exist as a union of referendums because the EU is a space for negotiation while referendums are the final word of the people that preclude further negotiations. Referendums are therefore political instruments that can be easily misused by both Euroskeptical minorities and euro-pessimistic governments to block the work of the union.


pages: 497 words: 150,205

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

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

But a bond-market panic is particularly pernicious because it can force even a solvent government to default, because it may not be able to raise funds quickly enough to meet its obligations. In that respect, a bond-market panic is like a bank run, where a dash for cash by depositors (or a refusal of other lenders to refinance its debts) can force even a solvent bank that can’t raise funds fast enough to fail. Bank runs used to be common and crippling until the central bank began stepping in as a “lender of last resort”, providing solvent banks with liquidity (cash loans secured against their assets). This not only ensured that solvent banks wouldn’t be felled by a liquidity crisis; it also stopped most bank runs from happening altogether, since depositors knew that the central bank stood ready to lend if necessary.

After inconclusive elections in May, Greece was due to hold a re-run on 17 June. Syriza, a far-left party that wanted to renegotiate the country’s EU-IMF programme while remaining in the euro, looked set to win, with eurozone policymakers threatening to force Greece out if it did. That prospect was accelerating the slow-motion bank run across southern Europe, threatening a full-on stampede. Such was the fragmentation of eurozone financial markets that a creditworthy hotel in South Tirol (Italy) had to pay three percentage points more for a bank loan than its equivalent in North Tirol (Austria) – if it could borrow at all. In effect, the single market had shattered.

Some believe the panacea is for southern European countries to reintroduce their own currencies. These would promptly depreciate, forcing them to default: a 25-per-cent depreciation would swell their euro-denominated debt burden by a third in their new currency; redenominating it would constitute a default too. Reintroducing a currency in the midst of a crisis would also provoke chaos: bank runs, lost savings, mass bankruptcies. But in any case, is devaluation really the solution? It hasn’t worked for Britain. Another solution, suggested by George Soros as a fallback option, is for Germany (or all the creditor countries) to leave the euro.316 The beauty of his proposal is that since southern Europe would keep the euro, it would not be forced to default, but that as the euro depreciated against the new Deutsche Mark, its debt burden in D-Mark terms would fall, imposing losses on Germany.


Where Does Money Come From?: A Guide to the UK Monetary & Banking System by Josh Ryan-Collins, Tony Greenham, Richard Werner, Andrew Jackson

bank run, banking crisis, banks create money, Basel III, Big bang: deregulation of the City of London, book value, Bretton Woods, business cycle, capital controls, cashless society, central bank independence, credit crunch, currency risk, double entry bookkeeping, en.wikipedia.org, eurozone crisis, fiat currency, financial innovation, fixed income, floating exchange rates, Fractional reserve banking, full employment, global reserve currency, Goodhart's law, Hyman Minsky, inflation targeting, interest rate derivative, interest rate swap, Joseph Schumpeter, low skilled workers, market clearing, market design, market friction, Modern Monetary Theory, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Northern Rock, offshore financial centre, Post-Keynesian economics, price mechanism, price stability, proprietary trading, purchasing power parity, quantitative easing, Real Time Gross Settlement, reserve currency, Ronald Reagan, seigniorage, special drawing rights, the payments system, trade route, transaction costs

A bank can charge compound interest, for example, on its loan, whereby interest incurred is added to the principal loan and further interest charged upon both the principal and the additional interest on an ongoing basis.72 The bank has not paid any equivalent interest to any saver in order to create the loan – it has simply created a highly profitable stream of income backed by nothing more than the perceived ability of the borrower to repay the loan or the collateral owned by the borrower (for example their home).* This is not to say that the bank has not provided a valuable service to the borrower by extending credit, and so therefore some profit is justified by the increased liquidity risk that the bank runs as a result of the additional credit. If the bank needs to obtain additional central bank reserves to maintain liquidity it will incur additional funding costs. However, it should be noted that such liquidity risk may in the end be directly or indirectly underwritten by the community. 3.4.3.

Typically, a bank will have many long-term and thus illiquid assets (e.g. 25 year-mortgage loans) whilst at the same time having many short-term liquid liabilities (i.e. customer deposits) which can be drawn down on demand. If confidence in a bank falls, this mismatch can become a problem. Customers may decide to rapidly withdraw their deposits en masse (a ‘bank run’), either by withdrawing cash, or by requesting electronic transfers across to accounts at other banks. In this situation, the bank can rapidly run out of both cash and central bank reserves. The bank can try to quickly sell off its loans in order to bring in the central bank reserves it needs to pay other banks, but if investors have concerns about the quality of the loans they are likely to force down the price of the loans and pay below the ‘book’ value of those loans.

* Balances up to £85,000 per person per banking group are guaranteed by the Government under the Financial Services Compensation Scheme. Prior to October 2007 only the first £2,000 was fully covered, with 90 per cent of the next £33,000 covered. The guarantee was progressively raised during the financial crisis to try to maintain depositors’ confidence and prevent any further bank runs after the run on Northern Rock. * For a classic account of the money multiplier, see Phillips (1920)19. For an explanation of how the system used to work in the United States, see: Nicols. (1992/1961)20 * The Financial Services Authority is currently bringing in legislation that will require Banks to hold an amount determined by ‘stress testing’ the potential for 100 per cent outflows of liabilities over a two-week period.24 † In the United States, for example, there is still a 10 per cent liquidity reserve ratio on certain deposits and in China the Government actively changes its liquidity reserve ratio in an attempt to restrain credit creation in order to fight inflation – at the time of writing it stood at 20.5 per cent (having been raised for the fourth time in 2011.


pages: 444 words: 86,565

Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions by Joshua Rosenbaum, Joshua Pearl, Joseph R. Perella

accelerated depreciation, asset allocation, asset-backed security, bank run, barriers to entry, Benchmark Capital, book value, business cycle, capital asset pricing model, collateralized debt obligation, corporate governance, credit crunch, discounted cash flows, diversification, equity risk premium, financial engineering, fixed income, impact investing, intangible asset, junk bonds, London Interbank Offered Rate, performance metric, risk free rate, shareholder value, sovereign wealth fund, stocks for the long run, subprime mortgage crisis, technology bubble, time value of money, transaction costs, yield curve

While the data room is continuously updated and refreshed with new information throughout the auction, the aim is to have a basic data foundation in place by the start of the second round. Access to the data room is typically granted to those buyers that move forward after first round bids, prior to, or coinciding with, their attendance at the management presentation. Prepare Stapled Financing Package The investment bank running the auction process (or sometimes a “partner” bank) may prepare a “pre-packaged” financing structure in support of the target being sold. The staple, which is targeted toward sponsors, was a mainstay in auction processes during the LBO boom of the mid-2000s. Although prospective buyers are not required to use the staple, historically it has positioned the sell-side advisor to play a role in the deal’s financing.

Although prospective buyers are not required to use the staple, historically it has positioned the sell-side advisor to play a role in the deal’s financing. Often, however, buyers seek their own financing sources to match or “beat” the staple. Alternatively, certain buyers may choose to use less leverage than provided by the staple. EXHIBIT 6.7 General Data Room Index To avoid a potential conflict of interest, the investment bank running the M&A sell-side sets up a separate financing team distinct from the sell-side advisory team to run the staple process. This financing team is tasked with providing an objective assessment of the target’s leverage capacity. They conduct due diligence and financial analysis separately from (but often in parallel with) the M&A team and craft a viable financing structure that is presented to the bank’s internal credit committee for approval.

In addition, once the LPs have received the return of every dollar of committed capital plus the required investment return threshold, the sponsor typically receives a 20% “carry” on every dollar of investment profit. 116 LPs generally hold the capital they invest in a given fund until it is called by the GP in connection with a specific investment. 117 The investment bank running an auction process (or sometimes a “partner” bank) may offer a pre-packaged financing structure, typically for prospective financial buyers, in support of the target being sold. This is commonly referred to as stapled financing (“staple”). See Chapter 6: M&A Sale Process for additional information. 118 Alternatively, the banks may be asked to commit to a financing structure already developed by the sponsor. 119 The financing commitment includes: a commitment letter for the bank debt and a bridge facility (to be provided by the lender in lieu of a bond financing if the capital markets are not available at the time the acquisition is consummated); an engagement letter, in which the sponsor engages the investment banks to underwrite the bonds on behalf of the issuer; and a fee letter, which sets forth the various fees to be paid to the investment banks in connection with the financing.


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Finance and the Good Society by Robert J. Shiller

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

This system usually works as intended, though it is vulnerable to sudden panic or bank runs: if people begin to distrust the bank, too many of them may ask to withdraw their money at one time and they will exhaust the bank’s supply of liquid funds.1 Even then, and even if there is no deposit insurance, if the government allows the bank to suspend liquidity temporarily, then depositors will still in all likelihood eventually get paid most of what they were owed, as the bank converts some of its illiquid holdings into cash. Bank regulators in modern times attempt to further reduce the problem of bank runs by demanding that banks maintain an adequate amount of reserves (cash in the vault or deposits at other banks, to make good immediately on any sudden withdrawals by depositors) and of capital (the total cushion of assets, after subtracting liabilities, available to make good on promises to depositors), so that they will not put the government in the position of having to bail out the banks.

Berk and Green (2004). 13. Bogle (2009): 47. 14. Levine (1997). 15. French (2008). 16. Goetzmann et al. (2002). 17. Dugan et al. (2002). 18. Dugan (2005). 19. Acharya et al. (2010). 20. Kaufman (2005): 313. 21. Bernasek (2010): 48. Chapter 3. Bankers 1. Diamond and Dybvig (1983) lay out the issue of bank runs as a problem of multiple equilibria in a model of banks as creators of liquidity, thereby providing both a clear rationale for the existence of banks and an understanding of their vulnerabilities. 2. http://fraser.stlouisfed.org/publications/bms/issue/61/download/130/section10.p Table 130. 3. There were some forms of capital requirements before 1982, but no national systematic and regular enforcement of them for banks until then.

List, and Ulrike Malmendier. 2011. “Testing for Altruism and Social Pressure.” Unpublished paper, Department of Economics, University of California at Berkeley. De Waal, Frans. 1990. Peacemaking among Primates. Cambridge, MA: Harvard University Press. Diamond, Douglas, and Philip Dybvig. 1983. “Bank Runs, Deposit Insurance, and Liquidity.” Journal of Political Economy 91(3):401–19. Dixit, Avinash K., and Robert S. Pindyck. 1994. Investment under Uncertainty. Princeton, NJ: Princeton University Press. Djilas, Milovan. 1982 [1957]. The New Class: An Analysis of the Communist System. New York: Harcourt Brace Jovanovich.


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

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

One of the most experienced investors there went so far as to suggest to the organizers that they ‘dispense altogether with an outside speaker next year, and instead offer a screening of Mary Poppins’.6 Yet the mention of Mary Poppins stirred a childhood memory in me. Julie Andrews fans may recall that the plot of the evergreen musical revolves around a financial event which, when the film was made in the 1960s, already seemed quaint: a bank run - that is, a rush by depositors to withdraw their money - something not seen in London since 1866. The family that employs Mary Poppins is, not accidentally, named Banks. Mr Banks is indeed a banker, a senior employee of the Dawes, Tomes Mousley, Grubbs, Fidelity Fiduciary Bank. At his insistence, the Banks children are one day taken by their new nanny to visit his bank, where Mr Dawes Sr. recommends that Mr Banks’s son Michael deposit his pocket-money (tuppence).

Between 1343 and 1360 no fewer than five Medici were sentenced to death for capital crimes.31 Then came Giovanni di Bicci de’ Medici. It was his aim to make the Medici legitimate. And through hard work, sober living and careful calculation, he succeeded. In 1385 Giovanni became manager of the Roman branch of the bank run by his relation Vieri di Cambio de’ Medici, a moneylender in Florence. In Rome, Giovanni built up his reputation as a currency trader. The papacy was in many ways the ideal client, given the number of different currencies flowing in and out of the Vatican’s coffers. As we have seen, this was an age of multiple systems of coinage, some gold, some silver, some base metal, so that any long-distance trade or tax payment was complicated by the need to convert from one currency to another.

By the time money has been deposited at three different student banks, M0 is equal to $100 but M1 is equal to $271 ($100 + $90 + $81), neatly illustrating, albeit in a highly simplified way, how modern fractional reserve banking allows the creation of credit and hence of money. The professor then springs a surprise on the first student by asking for his $100 back. The student has to draw on his reserves and call in his loan to the second student, setting off a domino effect that causes M1 to contract as swiftly as it expanded. This illustrates the danger of a bank run. Since the first bank had only one depositor, his attempted withdrawal constituted a call ten times larger than its reserves. The survival of the first banker clearly depended on his being able to call in the loan he had made to his client, who in turn had to withdraw all of his deposit from the second bank, and so on.


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

"there is no alternative" (TINA), Affordable Care Act / Obamacare, Alan Greenspan, asset-backed security, bank run, banking crisis, battle of ideas, Bear Stearns, Ben Bernanke: helicopter money, Berlin Wall, Bretton Woods, Brexit referendum, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Celtic Tiger, central bank independence, centre right, collapse of Lehman Brothers, collective bargaining, credit crunch, Credit Default Swap, cross-border payments, currency peg, currency risk, debt deflation, Deng Xiaoping, different worldview, diversification, Donald Trump, Edward Snowden, en.wikipedia.org, Fall of the Berlin Wall, financial deregulation, financial repression, fixed income, Flash crash, floating exchange rates, full employment, Future Shock, German hyperinflation, global reserve currency, income inequality, inflation targeting, information asymmetry, Irish property bubble, Jean Tirole, Kenneth Rogoff, Les Trente Glorieuses, low interest rates, Martin Wolf, mittelstand, Money creation, money market fund, Mont Pelerin Society, moral hazard, negative equity, Neil Kinnock, new economy, Northern Rock, obamacare, offshore financial centre, open economy, paradox of thrift, pension reform, Phillips curve, Post-Keynesian economics, price stability, principal–agent problem, quantitative easing, race to the bottom, random walk, regulatory arbitrage, rent-seeking, reserve currency, risk free rate, road to serfdom, secular stagnation, short selling, Silicon Valley, South China Sea, special drawing rights, tail risk, the payments system, too big to fail, Tyler Cowen, union organizing, unorthodox policies, Washington Consensus, WikiLeaks, yield curve

For Berlin, there was little that constituted systemic risk in the Cyprus situation, and German officials complained that “if Cyprus is systemic, then everything is systemic.” By contrast, many policy makers in France, but also in Italy and Spain, feared that penalization of Cypriot depositors might lead to a bank run in other countries (including their own). The Cyprus crisis changed Europeans’ attitude toward bailouts. The new chair of the Eurogroup, the Netherlands finance minister Jeroen Dijss-elbloem, spoke of the Cyprus approach as offering a “template.” Even outside Europe, it looked like an attractive solution to the problems created in the wake of the financial crisis.

Because of this funding structure, capital flows into the periphery could dry up and reverse quickly. Still, this is not a feature unique to international capital flows, as much within-country funding is also interbank and wholesale. Just consider, for example, Northern Rock, a UK bank that suffered a bank run in 2007. It was reliant on wholesale funding, and it was precisely this reliance that made Northern Rock so vulnerable to a run. Other UK banks also relied on wholesale funding, but the larger banks had European subsidiaries that had access to ECB liquidity at a time when the Bank of England was reluctant to provide liquidity out of moral hazard concerns.

Government Guarantees Governments may decide to issue blanket guarantees for domestic bank assets. If this guarantee is credible, then any liquidity-related problems will immediately dissipate. Government guarantees of this sort are generally not viewed as a crisis measure; basic kinds of deposit insurance are in place in many advanced economies, motivated as a means of staving off bank-run dynamics and so ensuring coordination on the good equilibrium. The Irish crisis experience, however, shows that extended government guarantees may also function as a crisis response tool that goes beyond fixing a liquidity problem and the taxpayer eventually may have to foot the bill. At the height of the financial crisis in 2008, the Irish government extended existing deposit insurance schemes to a two-year blanket guarantee for the liabilities of all Irish banks, including all sorts of deposits, senior unsecured debt, subordinated debt, and asset-covered securities.


The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good by William Easterly

"World Economic Forum" Davos, airport security, anti-communist, Asian financial crisis, bank run, banking crisis, Bob Geldof, Bretton Woods, British Empire, call centre, clean water, colonial exploitation, colonial rule, Edward Glaeser, end world poverty, European colonialism, failed state, farmers can use mobile phones to check market prices, George Akerlof, Gunnar Myrdal, guns versus butter model, Hernando de Soto, income inequality, income per capita, Indoor air pollution, intentional community, invisible hand, Kenneth Rogoff, laissez-faire capitalism, land bank, land reform, land tenure, Live Aid, microcredit, moral hazard, Naomi Klein, Nelson Mandela, publication bias, purchasing power parity, randomized controlled trial, Ronald Reagan, Scramble for Africa, structural adjustment programs, The Fortune at the Bottom of the Pyramid, the scientific method, The Wealth of Nations by Adam Smith, Tragedy of the Commons, transaction costs, TSMC, War on Poverty, Xiaogang Anhui farmers

In 1995, in return for support of the “pro-market reformer” Boris Yeltsin, for example, Russian tycoons snatched up the valuable firms at bargain-basement prices. At the auction of the prize oil company Yukos, the Yeltsin government excluded bids from foreign buyers, eliminating most deep-pocket competitors. The Yeltsin government also allowed the banks running the auction to bid on the properties they themselves were auctioning. So Mikhail Khodorkovsky could bid on the auction of Yukos, even though he owned the bank running the auction, Menatep. Russian privatization chief Alfred Kokh alleged that Khodorkovsky used the money of Yukos itself to bid for Yukos, perhaps by pledging future oil deliveries in return for loans. He managed to buy 77 percent of Yukos shares for $309 million in December 1995.8 This was a pretty good deal for a company that by 2003 reached a market valuation of $30 billion.9 Khodorkovsky joined the top ranks on Forbes ’s annual billionaires list.

The IMF’s approach is simple. A poor country runs out of money when its central bank runs out of dollars. The central bank needs an adequate supply of dollars for two reasons. First, so that residents of the poor country who want to buy foreign goods can change their domestic money (let’s call it pesos) into dollars. Second, so those poor-country residents, firms, or governments who owe money to foreigners can change their pesos into dollars with which to make debt repayments to their foreign creditors. What makes the central bank run out of dollars? The central bank not only holds the nation’s official supply of dollars (foreign exchange reserves), it also makes loans to the government and supplies the domestic currency for the nation’s economy.


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

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

The Chinese government might bar its banks from handling bitcoin-related transaction services or declare that only the yuan be used within the nation’s borders, but it can’t shut down bitcoin, which resides nowhere and everywhere. The same challenge faces any government. This was appealing to a marginal but not insignificant subculture of passionate, highly motivated activists who are skeptical of central-bank-run fiat money. More broadly, it was consistent with a trend toward decentralization and individual empowerment in the broader economy, a world in which people are renting out their sofas to paying guests, selling solar-generated power back to the grid, and drawing their news from decentralized forums such as Twitter.

The EU did this to ensure that private-sector investors who’d made risky bets on Greece shouldered some of the burden of the bailout that German and other euro-zone taxpayers were bearing. Cyprus’s overleveraged banks were an unintended casualty of that and were now faced with the terrifying threat of a bank run by their large Russian depositors. The dramatic solution, one endorsed by Germany and its EU partners, who were equally reluctant to bail out Russian oligarchs, was that the government in Nicosia would freeze deposits and confiscate 10 percent of them to pay for a bank bailout. This unprecedented step sent shock waves around the world.

He told his online correspondents to keep their eyes on two particular bitcoin addresses via a live, online blockchain monitor and that he would transfer 424,242.424242* bitcoins between them. It was the cryptocurrency equivalent of the old “wall of money” that bank managers of years past would put behind their tellers to dissuade panicked depositors from engaging in a bank run. After he moved such a large amount of coins, the maneuver had its desired effect. Such a massive handover of bitcoins suggested Mt. Gox was more flush than everyone feared. Three years later the blockchain-embedded history of this exercise, in which Karpelès effectively identified those addresses as belonging to Mt.


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The Full Catastrophe: Travels Among the New Greek Ruins by James Angelos

bank run, Berlin Wall, centre right, death of newspapers, disinformation, Fall of the Berlin Wall, ghettoisation, illegal immigration, income inequality, moral hazard, plutocrats, urban planning

German politicians renewed public deliberations over whether it would be best to eject Greece from the eurozone. “Grexit” became a frequently used word. Greeks started removing cash from their bank accounts over fears that ATM machines would soon start spitting out worthless drachmas. The severe bank run that resulted and the deepening cycle of doubt did not create an environment conducive to economic recovery, which of course made Greece’s problems even worse. In the next election, New Democracy, which depicted itself as the safe choice for voters wishing to remain in the euro, eked out a narrow victory, and on account of a parliamentary seat bonus afforded to the party with the plurality of votes, was able to form a coalition government that included its former rival, PASOK.

Given the discordant impasse between the two sides, doubts over Greece’s future in the eurozone once again intensified. “Grexit” reemerged in the lexicon, and even as many Greeks heralded Syriza’s bold stance toward the Troika, concerned Greek depositors began transferring their euros out of the country, stoking fears of another crippling bank run. Meanwhile, the state’s income rapidly eroded as many Greek taxpayers, anticipating Syriza would ease their burden, simply stopped paying, leaving the new government, just weeks in office, struggling desperately to make its debt payments and avoid default. Running out of time and money, Syriza’s leaders—like their predecessors—were compelled to yield to the creditors.

In one of the pictures, a young Mavrommatis in an embroidered dress and white shoes stood next to the restaurant entrance looking happily at the camera while her handsome, grinning father embraced her. The restaurant had been in the family for four generations, and despite Greece’s economic problems, business still seemed to be going okay. The instability of the previous few months—two parliamentary elections within a month, massive protests, a bank run over fears the country would exit the euro—were developments that tended to discourage foreign visitors, and Greece that year suffered the consequences with regard to tourism. Still, the island received a loyal mix of affluent Athenians and foreign returnees. When Ilias joined me at the table, he told me he didn’t know why the police wrote them up for what he said were eleven violations.


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Capitalism: Money, Morals and Markets by John Plender

activist fund / activist shareholder / activist investor, Alan Greenspan, Andrei Shleifer, asset-backed security, bank run, Berlin Wall, Big bang: deregulation of the City of London, Black Monday: stock market crash in 1987, 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, Cornelius Vanderbilt, 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 engineering, financial innovation, financial intermediation, Fractional reserve banking, full employment, Glass-Steagall Act, God and Mammon, Golden arches theory, Gordon Gekko, greed is good, Hyman Minsky, income inequality, industrial research laboratory, 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, price stability, principal–agent problem, profit motive, proprietary trading, quantitative easing, railway mania, regulatory arbitrage, Richard Thaler, rising living standards, risk-adjusted returns, Robert Gordon, 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

If depositors lose confidence in the bank and demand their money back all at once, the bank will be unable to meet its obligations. A run on deposits will follow. Such crises of confidence started in northern Italy in the late Middle Ages when this so-called fractional reserve banking became the norm. A vivid description of how bank runs arose comes from a contemporary Venetian account in the sixteenth century: The following year, 1584, I heard of the failure of the Pisani and Tiepolo bank for a very large sum of money. This was caused chiefly by the bankruptcy of one Andrea da l’Osta, a Tuscan, a Pisan, and a very rich merchant, who had lived in our city for many years.

The bank kept going for a few days, paying them off as best it could, but in the end the crowd of creditors increased and the bank collapsed and failed, to the detriment of numberless people and great damage to this market, which was without a bank for four years, so that business shrank to an unbelievable extent. The Republic felt the effects of this, and took very extensive measures, but to no avail.36 Today, bank runs usually take a different form. Big depositors such as companies, pension funds and other financial institutions simply decide not to renew lending lines or certificates of deposit, so an ailing bank finds that its sources of funds dry up. Notwithstanding that, the British bank Northern Rock actually experienced in 2007 an old-style run in which worried retail depositors queued up outside branches to withdraw their money.

Wilson) 1, 2 Alberti, Leon Battista 1 Alessandri, Piergiorgio 1 Allen, Maurice 1 Ambassadors, The (Henry James) 1 Americans for Tax Reform 1 Anatomy of Change-Alley (Daniel Defoe) 1 Angell, Norman 1 Anglosphere 1, 2 Arab Spring 1 Aramaic 1 arbitrage 1 Argentina 1 Aristotle 1, 2, 3, 4, 5, 6, 7, 8, 9 art 1 Asian Tiger economies 1 Atlas Shrugged (Ayn Rand) 1 Austen, Jane 1 Austrian school 1 aviation 1 Babbitt (Sinclair Lewis) 1 Bair, Sheila 1 Balloon Dog (Orange) (sculpture) 1 Balzac 1 Bank for International Settlements 1, 2, 3, 4, 5, 6 Bank of England 1, 2, 3, 4, 5 bank runs 1 bankers 1, 2 bankruptcy laws 1, 2 Banks, Joseph 1 Banksy 1 Barbon, Nicholas 1, 2, 3 Bardi family 1 Barings 1 Baruch, Bernard 1, 2 base metal, transmutation into gold 1 Basel regulatory regime 1, 2, 3 Baudelaire, Charles 1 Baum, Frank 1 behavioural finance 1 Belgium 1, 2 Bell, Alexander Graham 1 Benjamin, Walter 1 Bernanke, Ben 1, 2, 3 Bi Sheng 1 Bible 1 bimetallism 1 Bismarck, Otto von 1 Black Monday (1987) 1 black swans 1 Blake William 1, 2, 3 Bloch, Marcel 1 Bloomsbury group 1, 2 Boccaccio 1 bond market 1 bonus culture 1 Bootle, Roger 1 Boston Tea Party 1 Boswell, James 1 Boulton, Matthew 1 Bowra, Maurice 1 Brandeis, Louis 1 Bretton Woods conference 1 British Land (property company) 1 British Rail pension fund 1 Brookhart, Smith 1, 2 Brunner, Karl 1 Bryan, William Jennings 1 Bubble Act (Britain 1720) 1 bubbles 1, 2, 3 Buchanan, James 1 Buffett, Warren 1, 2, 3 Buiter, Willem 1 Burdett, Francis 1 van Buren, Martin 1 Burke, Edmund 1, 2 Burns, Robert 1 Bush, George W. 1, 2 Butler, Samuel 1 Candide (Voltaire) 1 Carlyle, Thomas 1, 2, 3 Carnegie, Andrew 1 Carville, James 1 cash nexus 1 Cash Nexus, The (Niall Ferguson) 1 Cassel, Ernest 1, 2 Catholic Church 1, 2, 3 Cecchetti, Stephen 1 Centre for the Study of Capital Market Dysfunctionality, (London School of Economics) 1 central bankers 1 Cervantes 1 Chamberlain, Joseph 1 Chancellor, Edward 1 Chapter 11 bankruptcy 1 Charles I of England 1, 2 Charles II of England 1 Chaucer 1 Cheney, Dick 1 Chernow, Ron 1 Chicago school 1, 2 Child & Co. 1 China 1, 2 American dependence on 1, 2 industrialisation 1, 2, 3 manufacturing 1 paper currency 1 Christianity 1, 2, 3, 4, 5 Churchill, Winston 1 Cicero 1, 2 Citizens United case 1 Cleveland, Grover 1 Clyde, Lord (British judge) 1 Cobden, Richard 1, 2, 3, 4 Coggan, Philip 1 Cohen, Steven 1 Colbert, Jean-Baptiste 1, 2 Cold War 1 Columbus, Christopher 1 commodity futures 1 Companies Act (Britain 1862) 1 Condition of the Working Class in England (Engels) 1 Confucianism 1, 2, 3 conquistadores 1 Constitution of Liberty, The (Friedrich Hayek) 1 Coolidge, Calvin 1, 2, 3 Cooper, Robert 1 copyright 1 Cort, Cornelis 1 Cosimo the Elder 1 crash of 1907 1 crash of 1929 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11 creative destruction 1, 2 credit crunch (2007) 1, 2, 3 cum privilegio 1 Cyprus 1, 2 Dale, Richard 1, 2 Dante 1 Darwin, Erasmus 1 Das Kapital (Karl Marx) 1 Dassault, Marcel 1 Daunton, Martin 1 Davenant, Charles 1, 2, 3 Davies, Howard 1 debt 1 debt slavery 1 Decameron (Boccaccio) 1 Defoe, Daniel 1, 2, 3, 4, 5, 6, 7, 8 Dell, Michael 1 Deng Xiaoping 1, 2 derivatives 1 Deserted Village, The (Oliver Goldsmith) 1, 2, 3 Devil Take the Hindmost (Edward Chancellor) 1 Dickens, Charles 1, 2, 3, 4, 5, 6, 7, 8, 9 portentously named companies 1 Die Juden und das Wirtschaftsleben (Werner Sombart) 1 A Discourse of Trade (Nicholas Barbon) 1 Ding Gang 1 direct taxes 1, 2 Discorsi (Machiavelli) 1 diversification 1 Dodd–Frank Act (US 2010) 1, 2, 3 ‘dog and frisbee’ speech 1 dot.com bubble 1, 2, 3, 4 Drayton, Harley 1 Dumas, Charles 1, 2 Dürer, Albrecht 1 Duret, Théodore 1, 2 Dutch East India Company 1 Duttweiler, Gottlieb 1 Dye, Tony 1 East of Eden (film version) 1 Economic Consequences of the Peace (Keynes) 1, 2 Edison, Thomas 1, 2 efficient market hypothesis 1 electricity 1 Eliot, T.


pages: 304 words: 91,566

Bitcoin Billionaires: A True Story of Genius, Betrayal, and Redemption by Ben Mezrich

airport security, Albert Einstein, bank run, Ben Horowitz, Big Tech, bitcoin, Bitcoin Ponzi scheme, blockchain, Burning Man, buttonwood tree, cryptocurrency, East Village, El Camino Real, Elon Musk, fake news, family office, fault tolerance, fiat currency, financial engineering, financial innovation, game design, information security, Isaac Newton, junk bonds, Marc Andreessen, Mark Zuckerberg, Max Levchin, Menlo Park, Metcalfe’s law, Michael Milken, new economy, offshore financial centre, paypal mafia, peer-to-peer, Peter Thiel, Ponzi scheme, proprietary trading, QR code, Ronald Reagan, Ross Ulbricht, Sand Hill Road, Satoshi Nakamoto, Savings and loan crisis, Schrödinger's Cat, self-driving car, Sheryl Sandberg, side hustle, side project, Silicon Valley, Skype, smart contracts, South of Market, San Francisco, Steve Jobs, Susan Wojcicki, transaction costs, Virgin Galactic, zero-sum game

Most of the storefront was brick, with large glass windows, a double wooden door, and three ATM machines perched on the stone sidewalk out front. Marina counted at least thirty people lined up at the machines, not pushing and shoving yet but clearly restless. “What is this?” Marina said. “It’s the bank run before the bank run.” Marina realized she probably should have been paying more attention during the protracted conversation the night before. She knew that things were bad, that Cyprus, like many of the more economically challenged nations of the EU, was in major debt—and that the continent’s financial leaders had been meeting in Brussels to figure out how to handle the situation.

“More than twenty thousand account holders at Laika, the second largest bank in Cyprus, are going to have half of their savings taken away,” Tyler said. “The Bank of Cyprus, the largest bank, is going to take almost fifty percent of all deposits over a hundred thousand.” “They’re calling it a tax, or levy,” Cameron said. “They’re closing all the banks to keep it from turning into a bank run.” “Look at this picture,” Tyler said. “This is a mob outside one of the banks. A bunch of people got hold of a bulldozer. It looks like they’re going to try to get inside.” “Nobody is going to feel safe keeping their money in an EU bank after this. No one is going to feel safe keeping money in any bank, period.”


pages: 294 words: 89,406

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

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

Having bought time, Ponzi was as industrious as he was unscrupulous in using it. He set out to try to use his lies and fake assets to take control of some real wealth. Those who live by the sword tend to die by it. Ponzi’s scheme was fated to collapse in the equivalent of a bank run, but while he was operating it he was not averse to using threats of bank runs as a weapon of his own. At the height of his scheme, the Securities Exchange Corporation’s cash balances (which were held on hand as short-term bank deposits, ostensibly to keep them ready to pay cash for postal coupons) were a significant percentage of the local money supply in Boston and its surrounding area.

Either point of view is defensible, because the S&L crisis was, in reality, at least two crises, and the policy measures which, partly successfully, aimed to solve the first arguably helped to bring about the second. The crisis had its roots in the 1970s and the attempt to tame inflation by raising interest rates. Savings and Loans (also known as ‘thrifts’) were a kind of small bank which had grown up in the pioneer era, taking deposits and making loans in a small local area. The legacy of bank runs and instability in the early days of the USA had, before the 1980s, left a legacy of mistrust of large or multi-branch operations, but the S&Ls had strict limits on what they could do and tended to operate in uncompetitive local markets. For this reason, it was felt that they didn’t need much scrutiny from bank examiners.


pages: 312 words: 93,836

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

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

By doing so, it is possible to reveal not only how and why LIBOR became so important in the first place, but also how and why it came to be perceived as an objective number that was impossible to manipulate. In short, how LIBOR became an illusion.3 *** A financial crisis tends to be associated with fears of a bank run. If customers desperately begin to withdraw their deposits from a bank, it can quickly turn into a self-fulfilling prophecy. Because if you think that others will become afraid that the bank will run out of cash, it might be rational to empty your own savings account first. The typical illustration of a bank run is a picture of a very long queue outside a bank branch or an ATM. The images look similar, whether they are black and white and taken in New York or Berlin during the 1930s, outside Northern Rock in Newcastle in 2007, or somewhere in Greece during the summer of 2015.

The individual LIBOR quotes, by contrast, were announced daily and therefore served as snapshots of the perceived creditworthiness of the banks. A unique thing with banks is that they inherently always have a desire to appear ‘good and sound’. If depositors lose confidence in the ability of the bank to meet its obligations, there could be a bank run around the corner and the bank could face the risk of being wiped out altogether. Even the slightest of suspicions could cause a sharp decline in the stock price. The problem with the LIBOR fixing mechanism resulted from the individual LIBOR rates being public knowledge (i.e. fully transparent) at the same time as the actual funding rate was private knowledge (i.e. secret).


pages: 585 words: 151,239

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

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, agricultural Revolution, air freight, Airbnb, airline deregulation, Alan Greenspan, American Society of Civil Engineers: Report Card, Asian financial crisis, bank run, barriers to entry, Bear Stearns, Berlin Wall, Blitzscaling, Bonfire of the Vanities, book value, Bretton Woods, British Empire, business climate, business cycle, business process, California gold rush, Charles Lindbergh, cloud computing, collateralized debt obligation, collective bargaining, Corn Laws, Cornelius Vanderbilt, corporate governance, corporate raider, cotton gin, creative destruction, credit crunch, debt deflation, Deng Xiaoping, disruptive innovation, Donald Trump, driverless car, edge city, Elon Musk, equal pay for equal work, Everybody Ought to Be Rich, Fairchild Semiconductor, Fall of the Berlin Wall, fiat currency, financial deregulation, financial engineering, financial innovation, fixed income, Ford Model T, full employment, general purpose technology, George Gilder, germ theory of disease, Glass-Steagall Act, global supply chain, Great Leap Forward, guns versus butter model, hiring and firing, Ida Tarbell, income per capita, indoor plumbing, informal economy, interchangeable parts, invention of the telegraph, invention of the telephone, Isaac Newton, Jeff Bezos, jimmy wales, John Maynard Keynes: technological unemployment, Joseph Schumpeter, junk bonds, Kenneth Rogoff, Kitchen Debate, knowledge economy, knowledge worker, labor-force participation, land bank, Lewis Mumford, Louis Pasteur, low interest rates, low skilled workers, manufacturing employment, market bubble, Mason jar, mass immigration, McDonald's hot coffee lawsuit, means of production, Menlo Park, Mexican peso crisis / tequila crisis, Michael Milken, military-industrial complex, minimum wage unemployment, mortgage debt, Myron Scholes, Network effects, new economy, New Urbanism, Northern Rock, oil rush, oil shale / tar sands, oil shock, Peter Thiel, Phillips curve, plutocrats, pneumatic tube, popular capitalism, post-industrial society, postindustrial economy, price stability, Productivity paradox, public intellectual, purchasing power parity, Ralph Nader, Ralph Waldo Emerson, RAND corporation, refrigerator car, reserve currency, rising living standards, road to serfdom, Robert Gordon, Robert Solow, Ronald Reagan, Sand Hill Road, savings glut, scientific management, secular stagnation, Silicon Valley, Silicon Valley startup, Simon Kuznets, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, stem cell, Steve Jobs, Steve Wozniak, strikebreaker, supply-chain management, The Great Moderation, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, total factor productivity, trade route, transcontinental railway, tulip mania, Tyler Cowen, Tyler Cowen: Great Stagnation, union organizing, Unsafe at Any Speed, Upton Sinclair, urban sprawl, Vannevar Bush, vertical integration, War on Poverty, washing machines reduced drudgery, Washington Consensus, white flight, wikimedia commons, William Shockley: the traitorous eight, women in the workforce, Works Progress Administration, Yom Kippur War, young professional

As of the close of business on March 4, 1933, the banks in thirty-five of the forty-eight states had declared bank holidays, according to an estimate by Allan Meltzer of Carnegie Mellon University. On March 5, FDR, as his first order of business, closed all banks under an obscure federal mandate. Closing banks was easier than reopening them again without triggering a resumption of bank runs. FDR discovered that his incoming administration didn’t have the capability to pull off this complicated task. Fortunately, Hoover’s team, led by the treasury secretary, Ogden Mills, and including Eugene Meyer, the chairman of the Federal Reserve, had devised a clever plan during its last year in office to reopen the banks without creating disruption: divide the banks into three classes according to their financial health; screen them thoroughly; and then restore them to regular operations in stages.

The act gave FDR the power to offer 100 percent guarantees for bank deposits, a point that the president hammered home in his first Fireside Chat, on March 12, a tour de force in which he explained the financial situation so well, Will Rogers quipped, that even a banker could understand it.26 Over the next few months, savers transferred billions of dollars of cash and gold from under their “mattresses” back into banks. FDR then created a Federal Bank Deposit Corporation (FIDC, later FDIC) that guaranteed individual bank deposits up to five thousand dollars (a figure that has subsequently been raised many times). The bank runs that had once been such a conspicuous feature of capitalism now became a rarity. He also reformed the securities industry by creating the Securities and Exchange Commission and forcing companies to publish detailed information, such as their balance sheets, profit and loss statements, and the names of their directors.

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


pages: 566 words: 155,428

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

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

Loose translation: Dear Customer, you can’t get access to the money you thought was yours, and we have no idea how much money that is. To people acquainted with American history, Paribas’ announcement brought to mind the periodic “suspensions of specie payments” in the nineteenth century—times when some prominent bank precipitated bank runs by refusing to exchange its notes for gold or silver. The big French bank had just refused to exchange its fund shares for cash. Whether you were French or American, the signal was clear: It was time to panic. And markets dutifully did so, all over the world. At some point, and in this case it didn’t take long, the interplay of falling asset values with high leverage starts calling into question the solvency of heavily exposed financial firms like Bear and Paribas.

Back in 1873, Walter Bagehot, the sage of central banking, had instructed central banks on what to do in a liquidity crisis. His triad was lend freely, against good collateral, but at a penalty rate. Why? Because the acute shortage of liquidity in a panic can push even solvent institutions over the edge. Customers come in demanding their money. If the banks don’t have enough cash on hand, word gets around, and bank runs start sprouting up everywhere. The disease is highly contagious. By serving as the lender of last resort, the central bank is supposed to stop all that from happening. And every central banker in the world knew Bagehot’s catechism. So that’s basically what most of them did in August 2007. In fact, one can argue that the ECB stuck with the Bagehot script until late 2011.

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


pages: 840 words: 202,245

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

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

If investors in other money market funds followed, the consequences were unimaginable. Money market funds would sell their commercial paper willy-nilly. No Wall Street firm might survive. By the end of the week, the Treasury decided to guarantee the funds in all money market funds and stemmed the tide—what could have been a true bank run every bit as frightening as the bank runs of the early 1930s. Geithner and Paulson tried to get the stronger banks to merge with weaker ones, in particular, Goldman with Citigroup and JPMorgan Chase with Morgan Stanley, but the deals did not work out. To shore up its capital, Goldman separately lined up a $5 billion investment for preferred stock and warrants (rights to buy common stock in the future) from Warren Buffett.

By then, banks were not only making business and consumer loans in excess, but also selling stocks and bonds, running investment management companies, and creating new and highly speculative investment vehicles for individuals—as well as promoting their own stock prices. Such a credit boom and bust alone may not have resulted in the Depression but it contributed substantially to its severity. Thousands of banks failed in the early 1930s as savers withdrew their funds, fearing that the banks had no assets with which to pay them—a classic bank run. By 1932, one fourth of all U.S. banks had failed, and state after state imposed a moratorium on banking. Franklin Roosevelt, on taking office as president in 1933, declared a bank holiday, closing the deposit and withdrawal windows around the country temporarily. Roosevelt resisted pleas to nationalize the banks, but he and his advisers established comprehensive new regulations.

Under Glass-Steagall, National City, like other major banks, was required to divest itself of its brokerage and underwriting arms, and do business only as a commercial bank, accepting deposits and making conservative purchases of government securities or cautious loans to business. The prestigious J.P. Morgan bank, run by the most influential financier of the age, was also separated from its investment banking arm, which took the name Morgan Stanley. The investment banks and brokerage firms were now regulated by the newly created Securities and Exchange Commission, whose first chairman was Joseph P. Kennedy, an aggressive financier himself and the father of a future president.


pages: 226 words: 59,080

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

airline deregulation, Alan Greenspan, Albert Einstein, bank run, barriers to entry, behavioural economics, Bretton Woods, business cycle, butterfly effect, capital controls, carbon tax, Carmen Reinhart, central bank independence, collective bargaining, congestion pricing, 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 elasticity of demand, price stability, prisoner's dilemma, profit maximization, public intellectual, quantitative easing, randomized controlled trial, rent control, rent-seeking, Richard Thaler, risk/return, 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

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. Models of self-fulfilling panic—a coordination failure in which individually rational withdrawals of credit lines produce collective irrationality in the form of a systemic drying up of liquidity—were well known to every student of economics, as were the conditions that facilitate such panics. The need for deposit insurance (coupled with regulation) to prevent bank runs was featured in all finance textbooks. A key pattern in the run up to the crisis was excessive risk taking by managers of financial institutions.


pages: 354 words: 105,322

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

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

In December 1930, the Bank of United States (a private bank despite its official sounding name), which catered to immigrants and small savers, suffered a bank run and closed its doors. The bank may have been solvent. Prejudice against Jewish and immigrant customers of the bank played a role in the refusal of the large New York Clearing House banks to rescue it. The clearinghouse believed the damage could be contained to the Bank of United States. They were wrong. Bank runs spread like an out-of-control prairie fire. Parts of the United States literally ran out of money. Communities resorted to barter and use of “wooden nickels” to buy food.

In the United States, stocks and industrial output plunged and unemployment soared beginning in 1929. The most acute phase of the depression, including a global banking panic, was concentrated in the years 1931–33. The European bank panic started in Austria with the failure of Creditanstalt on May 11, 1931. This led quickly to bank runs throughout Europe and the evaporation of commercial credit in London in a dynamic similar to the Panic of 1914. City bankers informed the Bank of England and the U.K. Treasury they would be insolvent in a matter of days if a rescue was not organized by the government. Unlike 1914 when gold convertibility was nominally maintained, this time the U.K.


pages: 376 words: 109,092

Paper Promises by Philip Coggan

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, Alan Greenspan, balance sheet recession, bank run, banking crisis, barriers to entry, Bear Stearns, Berlin Wall, Bernie Madoff, Black Monday: stock market crash in 1987, Black Swan, bond market vigilante , Bretton Woods, British Empire, business cycle, call centre, capital controls, Carmen Reinhart, carried interest, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, currency risk, debt deflation, delayed gratification, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, falling living standards, fear of failure, financial innovation, financial repression, fixed income, floating exchange rates, full employment, German hyperinflation, global reserve currency, Goodhart's law, Greenspan put, hiring and firing, Hyman Minsky, income inequality, inflation targeting, Isaac Newton, John Meriwether, joint-stock company, junk bonds, Kenneth Rogoff, Kickstarter, labour market flexibility, Les Trente Glorieuses, light touch regulation, Long Term Capital Management, low interest rates, manufacturing employment, market bubble, market clearing, Martin Wolf, Minsky moment, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Myron Scholes, negative equity, Nick Leeson, Northern Rock, oil shale / tar sands, paradox of thrift, peak oil, pension reform, plutocrats, Ponzi scheme, price stability, principal–agent problem, purchasing power parity, quantitative easing, QWERTY keyboard, railway mania, regulatory arbitrage, reserve currency, Robert Gordon, Robert Shiller, Ronald Reagan, savings glut, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, Suez crisis 1956, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, time value of money, too big to fail, trade route, tulip mania, value at risk, Washington Consensus, women in the workforce, zero-sum game

Your debtor or customer offers to pay you back, not in pounds or dollars, but in Monopoly money. You might not regard this as payment at all. The fundamental worry of creditors is that governments can issue as much money as they like. Indeed, the concept is built into the rules of the Monopoly board game. The rules state that, ‘The Bank never goes broke. If the Bank runs out of money it may issue as much more as may be needed by merely writing on any ordinary paper.’ And in a sense, monopoly money is what we are all using. The monopolists in this case are governments, which permit the issue of notes and coins and give such currency their seal of approval in the form of seals, mottoes, or the queen’s head.

The nineteenth century had suffered a series of panics as individual banks had gone bust. It was a time of rudimentary accounting standards, lax financial regulation and no deposit insurance; all this gave too much scope to bank executives and too little comfort to bank depositors. At the slightest sign of trouble, there would be bank runs as depositors queued to get their money out. Such runs were quite rational. As seen in Chapter 2, banks lent out a lot more money than they had cash-in-hand; they relied on the fact that only a small number of depositors would want to withdraw cash at the same time. Their depositors had instant access to their money while the banks made loans which would only be repaid over time; in the jargon, they borrowed short and lent long.

Index AAA Status of US Adams, Douglas Adams, John Addison, Lord Adenauer, Konrad adjustable rate mortgages adulterating coins affluent society Afghanistan ageing populations agrarian revolution Ahamed, Liaquat AIG air miles Alaska Amazon.com Angell, Norman Anglo Irish Bank annuities Argentina Aristophanes Arkansas Asian crisis of 1997 – 8 asset prices assignats Athens Austen, Jane austerity Austria Austrian school Austro-Hungarian empire Aztecs B&Q baby boomers Babylon Bagehot, Walter bailouts balanced budget Baldwin II, King of Jerusalem Balfour, Arthur Bancor Bank for International Settlements bank notes Bank of England bank reserves bank runs bankruptcy codes Banque Generale Barclays Capital Baring, Peter Baring Brothers Barnes & Noble barter Basle Accords Bastiat, Frederic BCA Research BCCI bear markets Bear Stearns Beaverbrook, Lord Belgium Belloc, Hillaire Benn, Tony Benn, William Wedgwood Bernanke, Ben Bernholz, Peter bezant Big Bang Big Mac index bills of exchange bimetallism biofuels Bismarck, Otto von Black Death Black Monday black swan Blackstone Blair, Tony Blum, Léon BMW Bodencreditanstalt Bohemia Bolsheviks Bonnet, Georges Bootle, Roger Brady, Nicholas Brady bonds Brazil Bretton Woods system Brodsky, Paul Brooke, Rupert Brown, Gordon Bruning, Heinrich Brutus Bryan, William Jennings bubbles budget deficits budget surplus building societies Buiter, Willem Bundesbank Burns, Arthur Bush, George W.


pages: 767 words: 208,933

Liberalism at Large: The World According to the Economist by Alex Zevin

"there is no alternative" (TINA), activist fund / activist shareholder / activist investor, affirmative action, Alan Greenspan, anti-communist, Asian financial crisis, bank run, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business climate, business cycle, capital controls, carbon tax, centre right, Chelsea Manning, collective bargaining, Columbine, Corn Laws, corporate governance, corporate social responsibility, creative destruction, credit crunch, David Ricardo: comparative advantage, debt deflation, desegregation, disinformation, disruptive innovation, do well by doing good, Donald Trump, driverless car, Edward Snowden, failed state, Fall of the Berlin Wall, financial deregulation, financial innovation, Francis Fukuyama: the end of history, full employment, Gini coefficient, Glass-Steagall Act, global supply chain, guns versus butter model, hiring and firing, imperial preference, income inequality, interest rate derivative, invisible hand, It's morning again in America, Jeremy Corbyn, John von Neumann, Joseph Schumpeter, Julian Assange, junk bonds, Khartoum Gordon, land reform, liberal capitalism, liberal world order, light touch regulation, Long Term Capital Management, low interest rates, market bubble, Martin Wolf, means of production, Michael Milken, Mikhail Gorbachev, Monroe Doctrine, Mont Pelerin Society, moral hazard, Naomi Klein, new economy, New Journalism, Nixon triggered the end of the Bretton Woods system, no-fly zone, Norman Macrae, Northern Rock, Occupy movement, Philip Mirowski, plutocrats, post-war consensus, price stability, quantitative easing, race to the bottom, railway mania, rent control, rent-seeking, road to serfdom, Ronald Reagan, Rosa Parks, Seymour Hersh, Snapchat, Socratic dialogue, Steve Bannon, subprime mortgage crisis, Suez canal 1869, Suez crisis 1956, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, trade liberalization, trade route, unbanked and underbanked, underbanked, unorthodox policies, upwardly mobile, War on Poverty, WikiLeaks, Winter of Discontent, Yom Kippur War, young professional

At home, the panic of 1866 was among the most spectacular, dominating Economist coverage of the money market long afterwards. In that year one of the City’s great wholesale banking houses, Overend, Gurney & Co., failed soon after it had raised large sums by incorporating as a company with limited liability. After the stock market crashed, a bank run ensued. For Bagehot, the episode demonstrated beyond a doubt that the Bank of England, which at first refused to intervene, was unlike all other banks and discount houses, and Bagehot told Gladstone as much during the crisis, over breakfast on 31 May.50 Bagehot also developed this argument in countless Economist leaders, distilled into a standalone book in 1873, Lombard Street.

Popular opinion not only grasped how important it was to secure the route to India: ‘No anxiety is shown to reduce the numbers of the Army; strong measures, like the dispatch of a fleet to Smyrna, to secure the surrender of Thessaly to the Greeks, are not resisted; and in recent Egyptian difficulties the country has been, on the whole, in favour of high-handed action.’91 Ireland was the pivot on which both sides of this New Radical realignment – social reform at home, imperial unity abroad – hinged: it was thus significant for both the Economist and for liberalism that Asquith grew so exasperated with the place, backing a wave of repression that set the tone at the paper long after he departed. The Land League, which began to urge Irishmen on to economic disobedience in 1880, calling for rent strikes, boycotts and bank runs, was the object of his special hatred. To eradicate these ‘terrorists’ posing as ‘public benefactors’, responsible for all kinds of ‘agrarian outrages’, no measures were too harsh: indefinite suspension of habeas corpus and jury trials, curfews, round-the-clock police and army patrols, deportations, collective punishment.

Liberty, humanity, justice, the mitigation of suffering, fostering civilization – all these might justify a call to arms; a ‘sordid squabble, a scramble for concessions and commercial monopolies’ on behalf of France did not.85 The Economist saw another way out of the bitter rivalry between France and Germany, which linked its attack on the two imperialisms, protectionist and free trade. Given the financial panic that gripped Berlin that summer, attributed to French bank withdrawals – a stock market crash, bank runs, a drain of gold abroad – all but forcing the Kaiser to back down in North Africa,86 it was a remarkable suggestion: categorically rejecting the idea that Paris was intentionally turning a ‘financial screw’ on its German neighbour, the paper argued for more French capital to cross the Rhine.87 Throw open the Paris Bourse to German industrial listings, spinning ties of mutual interest not unlike those the City wove with the British Empire.88 As tensions over Agadir eased – France ceding patches of West Africa for effective control in Morocco – Hirst was emboldened, sensing radicals had drawn a line in the sand.


pages: 416 words: 124,469

The Lords of Easy Money: How the Federal Reserve Broke the American Economy by Christopher Leonard

2021 United States Capitol attack, Affordable Care Act / Obamacare, Airbnb, Alan Greenspan, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, collateralized debt obligation, coronavirus, corporate governance, COVID-19, Donald Trump, Dutch auction, financial engineering, financial innovation, fixed income, Ford Model T, forensic accounting, forward guidance, full employment, glass ceiling, Glass-Steagall Act, global reserve currency, Greenspan put, hydraulic fracturing, income inequality, inflation targeting, Internet Archive, inverted yield curve, junk bonds, lockdown, long and variable lags, Long Term Capital Management, low interest rates, manufacturing employment, market bubble, Money creation, mortgage debt, new economy, obamacare, pets.com, power law, proprietary trading, quantitative easing, reserve currency, risk tolerance, Robinhood: mobile stock trading app, Ronald Reagan, Silicon Valley, stock buybacks, too big to fail, yield curve

Congress passed a law after the Civil War that chartered a series of national banks around the country, which issued a more uniform currency. But even if the currency problem got ironed out, there was a second reason that a central bank was necessary. The American banking system was still hyperfragile and subject to regular panics and failures. Major bank panics broke out, one after the next, in 1893, 1895, and 1907. Bank runs were inevitable in panics because there wasn’t an all-powerful central bank that could print money and act as a “lender of last resort,” providing loans when every bank needed money at the same time. Without a lender of last resort, the banks were left to bail out one another, using whatever reserves they happened to have on hand, or to fail.

Continental was the problem of the Chicago Federal Reserve, which extended a $3.6 billion emergency loan to the bank. Even this wasn’t enough. New York’s J. P. Morgan pulled together a group of lenders to assemble a $4.5 billion line of credit for Continental, but that also wasn’t enough. Continental’s customers lost faith in the bank and started a bank run, withdrawing about $10.8 billion in a year. Continental was going to fail. Even Paul Volcker became nervous when he was faced with the failure of Continental Illinois. He communicated constantly with the FDIC as the bank teetered. He was warned that Continental’s collapse could not be contained.

She portrayed the coronavirus pandemic as something like a bank panic that went beyond the banks and affected the entire American economy. The Fed was now the lender of last resort for everyone. “When [the coronavirus] came along and people realized how very serious it was going to be, there was just a huge, broad-based flight from risky assets of every type. And that’s like a modern-day bank run. Again, you know, fortunately the banks, the core banking system, is in good shape. Again this was centered in the shadow banking system. People are terrified of losses and they’re running from lending and want to be in the safety of cash. The role of the central bank is to take risks, to avoid harm to the economy, when no one else is willing to do so,” Yellen said.


pages: 584 words: 187,436

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

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

If Chanos had resented Schwartz’s suggestion when he first heard it, his mood morphed into unrestrained outrage over the next day or so. At six-thirty on Friday morning, when Squawk Box was on the air, word began to spread that the Fed was brokering a rescue for Bear Stearns; the closing of its hedge funds’ margin accounts had been followed by a collapse of confidence and a classic bank run. Schwartz had known the previous evening that his bank was going down, and yet he had tried to inveigle Chanos onto television anyway. “That fucker was going to throw me under the bus,” Chanos recalled later.2 Chanos’s exchange with Schwartz captured the transformed relationship between banks and hedge funds.

Lehman and its rivals had borrowed billions in the short-term money markets, then used the money to buy assets that were hard to sell in a hurry. When the crisis hit, short-term lending dried up instantly; everyone could see that the investment banks might face a crunch, and of course the fear was self-fulfilling. To stave off this sort of bank run, commercial banks have government insurance to reassure depositors and access to emergency lending from the Federal Reserve. But investment banks have no such safety net. Believing that they were somehow invincible, they had behaved as though they did have one. The next domino to fall was Merrill Lynch, the investment bank famous for its “thundering herd” of nearly seventeen thousand stockbrokers.

As one newspaper wrote, it was as if Wal-Mart were buying Tiffany’s. Now that Bear, Lehman, and Merrill were gone, the two remaining investment banks, Morgan Stanley and Goldman Sachs, came under pressure. All of Wall Street knew that their reliance on short-term funding, coupled with extremely high leverage, made them vulnerable to a bank run; and the Morgan and Goldman stock prices began to show up permanently at the top of the CNBC screen, in what traders called the “death watch.”25 The trouble at the giant insurer AIG only made things worse. By writing credit default swaps, AIG had sold protection against the danger that all manner of bonds might go into default—it was the kind of crazy risk taking you got when you located an ambitious trading operation inside the bosom of a well-capitalized firm, imbuing the traders with a heady sense of invulnerability.


pages: 733 words: 179,391

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

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

Rather than accepting one view and rejecting the other, it’s possible to reconcile these two opposing perspectives within a single consistent adaptive framework. We’ll need to know something about how the brain works, how we make decisions, and crucially, how human behavior evolves and adapts, before we can understand bubbles, bank runs, and retirement planning. Each of the disciplines we’ll draw on is a blind monk, unable to provide us with a complete theory, but when taken as a whole, we’ll see the elephant in sharp focus. DON’T TRY THIS AT HOME Many of us have felt fear individually when faced with the power of financial markets, but 2008 was the year the global financial crisis gave the entire world a taste of the finance of fear.

When a bank supervisor first identifies a troubled bank—for example, one that invested its deposits in bad loans that have defaulted—she must decide whether to require the bank to raise additional capital, or to wait and see whether the bank’s assets will rebound. Requiring a bank to raise capital is costly to a bank supervisor. The bank’s response will invariably be negative, and there’s always the risk that this action may cause a loss of confidence among the bank’s customers, possibly triggering a bank run, which is exactly what the additional capital is supposed to help avoid. Even worse, the regulatory action may seem unwarranted after the fact, causing a loss of confidence in the regulator’s competence and bringing down political wrath on the regulator’s agency. Here we have all the ingredients for a classic case of loss aversion: a sure loss to the regulator if she takes action, but a riskier alternative with the possibility of redemption, if only she waits.

In older black-and-white photos, the crowd might be in Germany or the United States. The crowd might be orderly, assembling itself into neat lines or queues. At other times, however, the crowd will be visibly unsettled or on the knife-edge of violence, and the next series of images will be of riots, burning ATMs, and looted banks. Economists call this form of behavior a bank run, and when many banks are involved, we call it a banking panic. However, if an alien biologist with no experience of Homo sapiens were to see this behavior, s/he/it would be hard pressed to distinguish the crowd of humans from a flock of geese or a herd of gazelle or springbok. Qualitatively, they’re engaging in the same behavior.


pages: 267 words: 74,296

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

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

The deal was sealed with another layer of the favourite Franco-German mix: Sarkozy secured a commitment to hold twice-yearly euro-zone-only summits with the option, in future, of having a separate president; Merkel obtained support for yet another revision of the treaty aimed vaguely at “strengthening economic convergence within the euro area, improving fiscal discipline and deepening economic union”. Yet within days the markets were struck by another bombshell: the Greek prime minister announced on October 31st that he would hold a referendum to approve the terms of the new rescue programme. Markets tumbled. The ECB worried that bank runs would start in Greece. After two years of crushing austerity, nobody could be expected to vote for more of it. Greek bond yields shot up, pulling everyone else along (see Figure 5.1). Italian bonds again pushed past the 6% mark. The euro zone was close to breaking. FIG 5.1 From crisis to crisis Ten-year bond yields, 2010–2012, % Source: Thomson Reuters Caned in Cannes The system of peer-pressure, shy at first and then ever more insistent as the crisis worsened, reached its logical and brutal climax at the G20 summit hosted by Sarkozy in Cannes on November 3rd–4th 2011.

Whether done by returning to national money, or by creating a Germanic northern euro and a Latin southern one, redenomination would mean that currencies, assets and liabilities would all be repriced abruptly. Some companies, in both creditor and debtor countries, would go bust. Some countries that devalued would be crushed by their euro-denominated debt and default. And there could be bank runs as depositors in southern countries rushed to move their savings to northern ones. The dislocation would be most acute for the deficit countries. If the euro has to be split, it would probably be least disruptive if Germany were to leave, either alone or with a group of northern neighbours, allowing the rest to devalue.


pages: 229 words: 75,606

Two and Twenty: How the Masters of Private Equity Always Win by Sachin Khajuria

"World Economic Forum" Davos, affirmative action, bank run, barriers to entry, Big Tech, blockchain, business cycle, buy and hold, carried interest, COVID-19, credit crunch, data science, decarbonisation, disintermediation, diversification, East Village, financial engineering, gig economy, glass ceiling, high net worth, hiring and firing, impact investing, index fund, junk bonds, Kickstarter, low interest rates, mass affluent, moral hazard, passive investing, race to the bottom, random walk, risk/return, rolodex, Rubik’s Cube, Silicon Valley, sovereign wealth fund, two and twenty, Vanguard fund, zero-sum game

So, in effect, the TV and radio stations are captive clients. The private equity bidders see the attraction of stable revenues and cash flow, and together with drawing on lessons learned from investments in media and technology in other parts of their portfolios, they feel they understand the proposition. The Wall Street bank running the auction on behalf of European Broadcast, Goldman Sachs, has offered to underwrite junk bonds and loans for the winning bidder to finance the leveraged buyout. The deal will be the first of this kind, the carve-out of infrastructure and related assets from quasi-state entities, and, if successful, it will likely prompt a wave of similar transactions involving communications infrastructure assets in other markets.

The public service broadcasters that constituted the client base were dependent on the tower infrastructure to provide TV and radio signals to the population, to provide continuity of universal service, as required in the licenses that permitted them to function. There was no question of non-payment, given that the broadcasters were supported by state bodies in Western democracies; they were AAA-rated clients. Safe as houses. The due diligence executed by the Australian team was more comprehensive than anything that Goldman Sachs, the Wall Street bank running the sale, had ever seen. They were thorough to the point of being paranoid that they would miss something important—and relentless. The team built a comprehensive picture of the target’s revenues and cash flow from the ground up, contract by contract. They did not rely on lawyers or consultants to summarize the contractual terms; they read them individually themselves to make sure.


pages: 491 words: 141,690

The Controlled Demolition of the American Empire by Jeff Berwick, Charlie Robinson

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, airport security, Alan Greenspan, American Legislative Exchange Council, American Society of Civil Engineers: Report Card, bank run, barriers to entry, Berlin Wall, Bernie Sanders, Big Tech, big-box store, bitcoin, Black Lives Matter, bread and circuses, Bretton Woods, British Empire, call centre, carbon credits, carbon footprint, carbon tax, Cass Sunstein, Chelsea Manning, clean water, cloud computing, cognitive dissonance, Comet Ping Pong, coronavirus, Corrections Corporation of America, COVID-19, crack epidemic, crisis actor, crony capitalism, cryptocurrency, dark matter, deplatforming, disinformation, Donald Trump, drone strike, Edward Snowden, Elon Musk, energy transition, epigenetics, failed state, fake news, false flag, Ferguson, Missouri, fiat currency, financial independence, George Floyd, global pandemic, global supply chain, Goldman Sachs: Vampire Squid, illegal immigration, Indoor air pollution, information security, interest rate swap, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jeff Bezos, Jeffrey Epstein, Julian Assange, Kickstarter, lockdown, Mahatma Gandhi, mandatory minimum, margin call, Mark Zuckerberg, mass immigration, megacity, microapartment, Mikhail Gorbachev, military-industrial complex, new economy, no-fly zone, offshore financial centre, Oklahoma City bombing, open borders, opioid epidemic / opioid crisis, pill mill, planetary scale, plutocrats, Ponzi scheme, power law, pre–internet, private military company, Project for a New American Century, quantitative easing, RAND corporation, reserve currency, RFID, ride hailing / ride sharing, Saturday Night Live, security theater, self-driving car, Seymour Hersh, Silicon Valley, smart cities, smart grid, smart meter, Snapchat, social distancing, Social Justice Warrior, South China Sea, stock buybacks, surveillance capitalism, too big to fail, unpaid internship, urban decay, WikiLeaks, working poor

When the central banks crank up the printing press and generate billions of dollars that they give to their criminal friends running the big banks, they refer to that as “quantitative easing” and not counterfeiting. Central banks manipulate interest rates, something that would be illegal for anyone else to do so that people cannot calculate the real cost of money. Any arrests for this? Of course not, because the banks run the world, not the governments. The people of America no longer even hold out any hope of justice being served because, after years and years of watching these criminal banks steal with impunity, with nobody going to prison for these crimes, the public has essentially gone numb. Not only has nobody gone to prison, nobody has even been put in handcuffs, no perp walks, and not a single executive has even been taken down to the police station for questioning.

The crime wave that is sweeping western governments is the rigging of financial markets, and it has been happening in most global marketplaces for years. It has only been recently that those involved in the fraud have been investigated, but it always ends with nobody doing any prison time and the company getting off with a small fine and no admission of any wrong-doing. The big banks run Wall Street, and Wall Street has a tremendous amount of influence in Washington. They have set up a feedback loop of bankers that go to Washington, and bureaucrats from Washington that rotate through lower Manhattan. Nowhere was this more evident than when former Attorney General Eric Holder decided that he did not want to actually do anything to hold those that crashed the economy in 2008 accountable for their mountain of blatant crimes.

One major possibility for causing massive civil unrest has to do with the one aspect of American society that all citizens have in common, and that is the dollar. The outrage that erupts when an unarmed black teenager is shot by police tends to be limited either geographically or due to race, but everyone would be impacted and vocal if there was a bank run. The scary truth is that what is separating this scenario from crossing over from a possibility to reality is not very much at all. In fact, it is dumb luck that it has not happened already. PUSHING DOWN THE PLUNGER The “Invisible Enemy” Once the building with the rotten foundation has been pre-weakened, the support columns have been identified and rigged with explosives and the co- conspirators have safely fled the crime scene, there is only one thing left to do: wait for the right time to push down the plunger and take this building down.


pages: 700 words: 201,953

The Social Life of Money by Nigel Dodd

"hyperreality Baudrillard"~20 OR "Baudrillard hyperreality", accounting loophole / creative accounting, bank run, banking crisis, banks create money, behavioural economics, Bernie Madoff, bitcoin, Bitcoin Ponzi scheme, blockchain, borderless world, Bretton Woods, BRICs, business cycle, capital controls, capitalist realism, cashless society, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, commoditize, computer age, conceptual framework, credit crunch, cross-subsidies, currency risk, David Graeber, debt deflation, dematerialisation, disintermediation, Dogecoin, emotional labour, eurozone crisis, fiat currency, financial engineering, financial exclusion, financial innovation, Financial Instability Hypothesis, financial repression, floating exchange rates, Fractional reserve banking, gentrification, 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, Minsky moment, 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, Neal Stephenson, 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-Fordism, 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, Satoshi Nakamoto, scientific management, 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

They are, in this sense, the special purpose money of the Eurozone. Similar issues have arisen elsewhere in Euroland during this crisis. In Greece, a “slow motion bank run” has been underway since the country’s sovereign debt crisis blew up in late 2011. Here, the onus is on moving funds out of the Greek banking system and into safe haven elsewhere in the Eurozone. At its height, Greek banks were reporting €30 million of outflow of funds into other Eurozone member states. This was not a conventional bank run, fueled by fear of bank failure, but a run caused by prevailing concerns about exchange rate risk, and more specifically, about the prospect of an instantaneous devaluation of Greek deposits should the country exit the Eurozone altogether.47 Here too, then, not all euros were equal: not because they could not move but because of an overwhelming sense that they had to.

While wealthier Greeks were investing heavily in London real estate, others were hoarding cash in more mundane domestic spaces because of what might happen to their bank accounts should Greece leave the Eurozone and launch its own independent currency. Fearful that their savings would be decimated overnight, Greeks were reversing the conventional wisdom that a bank is the most secure place to keep your money. What began as a crisis in the U.S. subprime mortgage market in 2007 was now manifesting itself as a slow-motion bank run. This problem was not confined to Greece but was happening throughout the Eurozone amid widespread doubt about the future of a project that had been launched with such optimism a little more than a decade before. Since the collapse of Lehman Brothers in September 2008, the world’s major central banks have been plowing vast quantities of money into the banking system.

Should a eurozone member ultimately find itself unable to consolidate its budgets or restore its competitiveness, this country should, as a last resort, exit the monetary union while being able to remain a member of the EU” (Schäuble 2010). 46 After initially proposing a levy or tax on all deposit accounts—9.9 percent for those too big to be covered by the EU-mandated €100,000 deposit guarantee, and 6.75 percent for the smaller depositors—the government reached a compromise whereby only larger depositors would be hit. 47 See Gavyn Davies, “The Anatomy of the Eurozone Bank Run,” Financial Times, May 20, 2012. 48 Following Schmitt, Agamben defines sovereignty in terms of the capacity to suspend the rule of law. He describes the declaration of a state of exception: the ban. It is an idea that “calls into question every theory of the contractual origin of state power and, along with it, every attempt to ground political communities in something like a ‘belonging,’ whether it be founded on popular, national, religious, or other identity” (Agamben 1998: 181). 49 As Agamben describes it, the camp is a piece of land that is “placed outside the normal juridical order, but is nevertheless not simply an external space” (Agamben 2000: 133).


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

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

In December 2008, nine months after the implosion of Bear Stearns, its former Chairman Ace Greenberg said in an interview that the investment banking model is now dead, that ‘‘that model just doesn’t work because it’s at the mercy of rumors,’’2 and later added that a rumor can put any of these firms at peril. . . . (Even Goldman Sachs and Merrill Lynch) had to convert over the weekend to banks, had to have infusions of capital because they couldn’t withstand the selffulfilling prophecies of the rumors.3 Bank runs and rumors—underlying it all is the crucial, though somewhat slippery, issue of confidence. Once a firm’s ability to raise money and to meet its obligations is questioned, its entire business can seize up almost literally overnight. The downward spiral picks up speed when those responsible for assessing the firm’s value or its ability to pay its debts—research analysts and credit rating agencies, respectively—downgrade the firm’s stock and credit ratings.

See Self-Regulatory Organizations (SROs) Standard & Poor (S&P), 84, 88, 94 structured finance products, 32, 34–36, 73, 84, 88 Stuart, John, xvii–xviii subprime mortgages AAA rating for, 33–34 interest rates, rising, 86 investment bankers, xxi mortgage payments and, 34 pooled risk, 33 ratings, downgrading, xvii–xix, 88, 93 structured investments backed by, 37 as toxic assets, 32–34, 37 systemic risk and market meltdown about, 1 AIG and credit default swaps, 5 Bear Stearns, 2–6, 10, 13–14 borrowed money, short vs. long-term, 2 ‘‘breaking the buck,’’ 8 collateral damage, 6–7 conclusion, 12 economy is about connections, 1 economy is not the sum of its parts, 1 funding, day-to-day, 2–3 government intervention, 9–10, 12 hedge fund redemption, 6 investment practice, legal covenants governing, 4 Lehman repos, 8 leverage, 6 Long Term Capital hedge fund collapse, 11 loss of confidence, 3 margin call, 6 money market fund, 7–9, 11, 92 regulation to focus on firms vs. system as a whole, 12 regulatory reform proposals, 2, 12 repurchase agreement (repo), 3, 6–8, 13 risk of fluctuation in the overnight price of an asset, 3 rumor control and market psychology, 4 rumors, at the mercy of, 4–6 rumors, self-fulfilling nature of, 9 rumors and bank runs, 4 rumors cause a crisis, 4 run on the bank, institutional, 6 SEC regulations restricting what money market fund for investment, 7 six degrees of separation, 11 speculative (junk) bond status, 4 system collapse, why not before?, 10–12 systemic, how a problems goes, 3–10 systemic risk, how it works, 2–9 systemic risk, macro/micro, 2 systemic risk and Bear Stearns, 13–14 system is complex and prone to uncertainty and rumor, 12 toxic assets, difficult-to-price, 6 T TARP.


pages: 310 words: 85,995

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

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

But an increase in the supply of housing needs to be gradual: a quantum increase would risk crashing house prices, plunging many young home owners into negative equity. Correspondingly, it makes sense to curb household growth by restoring restrictions on immigration. The credit frenzy unleashed by financial deregulation did not usher in nirvana – it ended in the regulatory disgrace of a bank run. The sight of depositors besieging the branches of Northern Rock was the first such spectacle in Britain for 150 years. As with a house building programme, change will need to be gradual, but its direction is unambiguous: we need to return to ceilings on the ratios of mortgages to income and of mortgages to deposits.

One is that they widen inequality to no good purpose. The super-smart work for themselves: this is the implication of the bonus system in investment banks, where the stars in effect pay the firm a modest share of their individual profits for the services it provides. Deutsche Bank, the most extreme example of an investment bank run for stars, paid €71 billion in bonuses, dwarfing the €19 billion paid to shareholders.* Power is no longer in the hands of owners of capital, nor even of the managers of their wealth. Pension funds cannot pay the mega-salaries that would be required to recruit stars, and so they are managed by the slightly less smart.


pages: 519 words: 148,131

An Empire of Wealth: Rise of American Economy Power 1607-2000 by John Steele Gordon

accounting loophole / creative accounting, Alan Greenspan, bank run, banking crisis, Bretton Woods, British Empire, business cycle, buttonwood tree, California gold rush, Charles Babbage, clean water, collective bargaining, Corn Laws, Cornelius Vanderbilt, corporate governance, cotton gin, cuban missile crisis, disintermediation, double entry bookkeeping, failed state, Fairchild Semiconductor, financial independence, flying shuttle, Ford Model T, Frederick Winslow Taylor, full employment, Glass-Steagall Act, global village, Ida Tarbell, imperial preference, industrial research laboratory, informal economy, interchangeable parts, invisible hand, Isaac Newton, it's over 9,000, Jacquard loom, James Hargreaves, James Watt: steam engine, joint-stock company, joint-stock limited liability company, junk bonds, lone genius, Louis Pasteur, low interest rates, margin call, Marshall McLuhan, means of production, megaproject, Menlo Park, Mikhail Gorbachev, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, new economy, New Urbanism, postindustrial economy, price mechanism, Ralph Waldo Emerson, RAND corporation, rent control, rent-seeking, reserve currency, rolodex, Ronald Reagan, Savings and loan crisis, spinning jenny, Suez canal 1869, The Wealth of Nations by Adam Smith, three-masted sailing ship, trade route, transaction costs, transcontinental railway, undersea cable, vertical integration, Yom Kippur War

The Glass-Steagall Act also established the Federal Bank Deposit Insurance Corporation (FDIC), which guaranteed the deposits of banks that joined the system (only banks that were members of the Federal Reserve were required to join) up to $5,000 per account. At a stroke, the bank run, a recurring nightmare in the American economy since the first one in 1809, became a thing of the past. Roosevelt had worried about the “moral hazard” created by a system that relieved bankers of the worry that their depositors’ assets would be wiped out. But he decided that eliminating bank runs was worth it. There has not been a significant American bank run since, but events long after his death would prove that Roosevelt had been right to worry. Glass-Steagall greatly strengthened national banks by permitting them to branch within the states where they were headquartered, if that state permitted branch banking.


pages: 868 words: 147,152

How Asia Works by Joe Studwell

affirmative action, anti-communist, Asian financial crisis, bank run, banking crisis, barriers to entry, borderless world, Bretton Woods, British Empire, call centre, capital controls, central bank independence, collective bargaining, crony capitalism, cross-subsidies, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Deng Xiaoping, failed state, financial deregulation, financial repression, foreign exchange controls, Gini coefficient, glass ceiling, Great Leap Forward, high-speed rail, income inequality, income per capita, industrial robot, Joseph Schumpeter, Kenneth Arrow, land reform, land tenure, large denomination, liberal capitalism, low interest rates, market fragmentation, megaproject, non-tariff barriers, offshore financial centre, oil shock, open economy, passive investing, purchasing power parity, rent control, rent-seeking, Right to Buy, Ronald Coase, South China Sea, The Wealth of Nations by Adam Smith, TSMC, urban sprawl, Washington Consensus, working-age population

Captive banks ask fewer questions than independent ones and, when regulation is weak, can lend their owners a great deal of money compared with the investment needed to start or buy a bank. In the United States, havoc broke out among under-regulated small banks in 1907, in a crisis referred to as the Panic. In 1927 Japan faced an even greater number of bank runs and failures. Since the most hopelessly conflicted banks were small ones, the Japanese government passed a new Banking Act that forced banks to merge. However, this simply opened the way for a few huge zaibatsu lenders to dominate. The four biggest ones came to control the majority of credit, pursuing mostly intra-group lending while denying finance to downstream manufacturers outside their groups.

Printing money became the only form of finance left. Like Korea, the Philippines was used to an elevated inflation rate because of rediscounting, but price rises accelerated greatly in the mid 1980s. The inflation rate was 50 per cent in 1984 and the currency slid from 7.5 pesos to the dollar in 1980 to 20 in 1986. Following bank runs, bank nationalisations and the closure of large investment houses in 1981, another four banks had to be shut.55 In February 1986, amid large-scale protests, Marcos fled on a US government airplane, at the zenith of a crisis in which the Philippine economy shrank by a quarter.56 The meltdown signalled the end of the Philippines’ association with a particularly perverted form of developmental finance.

When the Asian crisis spread from Thailand to Indonesia, there was so much panic that BCA, Liem Sioe Liong, the Suhartos and all their monopolies went down with it. The rupiah’s value started to fall at the end of 1997 and it quickly became apparent that the banking system as a whole would be unable to meet its foreign obligations. Bank runs ensued without reference to the particular solvency of individual banks. An extraordinary IDR65 trillion (around USD8 billion)87 was withdrawn from BCA in two weeks as depositor queues snaked around its branches. Liem Sioe Liong was required to put up collateral assets to cover money the central bank lent BCA to pay out its depositors.


pages: 468 words: 145,998

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

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

To meet demands for payment, first Bear and then other firms would be forced to sell whatever they could, in any market they could—driving prices down, causing more losses, and triggering more margin and collateral calls. The firms that had already started to pull their money from Bear were simply trying to get out first. That was how bank runs started these days. Investment banks understood that if any questions arose about their ability to pay, creditors would flee at wildfire speed. This is why a bank’s liquidity was so critical. At Goldman we had absolutely obsessed over our liquidity position. We didn’t define it just in the traditional sense as the amount of cash on hand plus unencumbered assets that could be sold quickly.

For the day, the dollar hit a then-record low of $1.56 against the euro, while gold soared to a new high of $1,009 an ounce. Despite the backing of JPMorgan and the Fed, doubts remained about Bear’s ability to survive. Its accounts continued to flee, draining its reserves further. We needed to get a deal done by Sunday night, before the Asian markets opened and the bank run went global. That afternoon during a meeting on our housing initiatives, I asked Neel Kashkari if he was going to be around during the weekend, because we might need help on Bear. Neel said: “I have to imagine I’d be more useful to you in New York than sitting next to you in D.C.” I agreed, but before he took off I said, “I am sending you to do something you are totally unqualified to do, but you’re all I’ve got.”

This idea was being pushed by Larry Lindsey, a former economic adviser to the president and onetime Fed governor. To pay their bills, companies routinely kept sums of cash in their checking accounts that far exceeded the $100,000 FDIC insurance limit. That left them prone to pulling their money at the first sign of danger and, as with Wachovia, thereby fueling bank runs. We discussed the idea of unlimited guarantees to stabilize these accounts, but we worried that in the midst of a panic, foreign depositors would move their money to the U.S. to take advantage of this new protection, sparking retaliatory actions by other countries and weakening the global financial system.


pages: 444 words: 151,136

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

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

That year saw a stock market rally and active government and Fed intervention, with President Hoover claiming credit for engineering a recovery with a hat tip to the central bank in a speech before the American Bankers Association in October. However, the monetary contraction picked up steam in each year through 1933, ultimately shrinking bank money to $32.2 billion from $46.6 billion four years earlier. Stock market panics, bank runs, and business depressions were much more in the memory of individuals in that era than today. Probably by late 1931 the progression of events began to imbed fear and severely altered behavior, because hopes of merely replaying the comparatively shorter crises since the early 19th century were dashed by the severity of the decline in stock prices through the end of that year, over 74 percent as measured by the Cowles Commission data.

An effort by central banks to slightly improve their central bank balance sheets through boosting gold backing by 10 to 30 percent 104 ENDLESS MONEY (i.e., Sweden going from 29% gold backing to 32%) probably brightened the internal investment climate. On one hand it might discourage currency and bank runs, but on the other hand it would not spook capital markets by monopolizing limited state resources through hoarding. Even more interesting is that some countries such as Denmark could take the approach of dialing down what may have been excessive reserves (40% in 1929) to a more manageable ratio (25% in 1934), and be rewarded for it.

Bernanke also added in the possibility that the Fed could become involved in the foreign exchange market, noting that the 40 percent devaluation of the dollar against gold in 1933-34 enforced by Franklin Roosevelt had been effective in ending deflation. Prior to this, the government had outlawed private ownership of gold before resetting its price to $35, in effect taxing private savings and eliminating this refuge from bank runs. Like his statements about the alchemist, this is also nonsensical, because now there is no link to gold. A Penny In the Fuse Box In 2008 Federal Reserve governors more than doubled the central bank’s balance sheet, pumping roughly $1 trillion of credit into member banks and securities markets, and importantly other central banks globally.


pages: 524 words: 155,947

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

accounting loophole / creative accounting, Ada Lovelace, agricultural Revolution, Airbnb, airline deregulation, Alan Greenspan, Andrei Shleifer, anti-communist, Apollo 11, assortative mating, autonomous vehicles, bank run, banking crisis, banks create money, basic income, Bear Stearns, Berlin Wall, Black Monday: stock market crash in 1987, Bletchley Park, Bob Noyce, Boeing 747, bond market vigilante , Branko Milanovic, Bretton Woods, Brexit referendum, British Empire, business cycle, call centre, capital controls, carbon footprint, carbon tax, Carl Icahn, Carmen Reinhart, Celtic Tiger, central bank independence, Charles Babbage, Charles Lindbergh, clean water, collective bargaining, Columbian Exchange, Columbine, Corn Laws, cotton gin, credit crunch, Credit Default Swap, crony capitalism, cross-border payments, currency peg, currency risk, debt deflation, DeepMind, Deng Xiaoping, discovery of the americas, Donald Trump, driverless car, Easter island, Erik Brynjolfsson, European colonialism, eurozone crisis, Fairchild Semiconductor, falling living standards, financial engineering, financial innovation, financial intermediation, floating exchange rates, flying shuttle, Ford Model T, Fractional reserve banking, Frederick Winslow Taylor, full employment, general purpose technology, germ theory of disease, German hyperinflation, gig economy, Gini coefficient, Glass-Steagall Act, global supply chain, global value chain, Gordon Gekko, Great Leap Forward, greed is good, Greenspan put, guns versus butter model, Haber-Bosch Process, Hans Rosling, Hernando de Soto, hydraulic fracturing, hydroponic farming, Ignaz Semmelweis: hand washing, income inequality, income per capita, independent contractor, indoor plumbing, industrial robot, inflation targeting, Isaac Newton, James Watt: steam engine, job automation, John Snow's cholera map, joint-stock company, joint-stock limited liability company, Jon Ronson, Kenneth Arrow, Kula ring, labour market flexibility, land reform, land tenure, Lao Tzu, large denomination, Les Trente Glorieuses, liquidity trap, Long Term Capital Management, Louis Blériot, low cost airline, low interest rates, low skilled workers, lump of labour, M-Pesa, Malcom McLean invented shipping containers, manufacturing employment, Marc Andreessen, Mark Zuckerberg, Martin Wolf, McJob, means of production, Mikhail Gorbachev, mittelstand, Modern Monetary Theory, moral hazard, Murano, Venice glass, Myron Scholes, Nelson Mandela, Network effects, Northern Rock, oil shale / tar sands, oil shock, Paul Samuelson, Paul Volcker talking about ATMs, Phillips curve, popular capitalism, popular electronics, price stability, principal–agent problem, profit maximization, purchasing power parity, quantitative easing, railway mania, Ralph Nader, regulatory arbitrage, road to serfdom, Robert Gordon, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, savings glut, scientific management, Scramble for Africa, Second Machine Age, secular stagnation, Silicon Valley, Simon Kuznets, South China Sea, South Sea Bubble, special drawing rights, spice trade, spinning jenny, Steven Pinker, Suez canal 1869, TaskRabbit, techlash, Thales and the olive presses, Thales of Miletus, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Rise and Fall of American Growth, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade route, Tragedy of the Commons, transaction costs, transatlantic slave trade, transcontinental railway, Triangle Shirtwaist Factory, universal basic income, Unsafe at Any Speed, Upton Sinclair, V2 rocket, Veblen good, War on Poverty, Washington Consensus, Watson beat the top human players on Jeopardy!, women in the workforce, world market for maybe five computers, Yom Kippur War, you are the product, zero-sum game

But Roosevelt proclaimed that “We put those payroll contributions there so as to give contributors a legal, moral and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program.”80 History has proved him right. Among Roosevelt’s other important reforms were the introduction of deposit insurance, which reduced the temptation for bank runs, the Glass–Steagall Act, which separated commercial from investment banking, and the creation of the Securities Exchange Commission to regulate the finance sector. The idea was to make sure that the riskiest parts of banking, linked to asset trading, did not pull down the conventional business of taking deposits and making loans.

Banks have a natural mismatch. They owe money to depositors who can withdraw it at any time, while on the other side of their balance sheets they lend money to individuals and businesses for long periods. If enough depositors want to withdraw their money at once, even a well-run bank will get into trouble. Once a bank run starts, it is hard to stop. If depositors fear a bank will go bust, it makes sense for them to withdraw their money immediately. But this loss of confidence only makes the crisis worse. At this point, the central bank can step in and lend money to the ailing bank to tide it over. It took time for the Bank of England to accept this responsibility.

The Queen’s question So why didn’t anyone see the crisis coming (as Queen Elizabeth II memorably asked when opening a new building at the London School of Economics)?14 There were several causes. Regulators had been lulled into a false sense of security about the strength of the banking sector in the developed world. The introduction of deposit insurance, in the wake of the Great Depression, seemed to have solved the problem of banking runs. But a moral hazard had been created, in which there was every incentive for bankers to take risk. In the late 19th century, banks in Britain had equity capital equivalent to 15–25% of their assets. By the 1980s, this cushion was just 5%.15 The long period of low interest rates and rising asset prices meant that bankers who were aggressive in their lending practices had been successful.


pages: 566 words: 160,453

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

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

We didn’t know where we had been, and we didn’t know where we were going. Same as now. Northern Rock It is not as if there weren’t adequate warnings. During my time on the MPC I watched as thousands of people lined up outside Northern Rock when its website failed. The world was treated to the scenes of a good old bank run. Depositors waiting in line around the country to withdraw their cash. Shin (2009) has noted that the last time that happened was at Overend, Gurney, a London bank that got in trouble in the railway and docks boom of the 1860s. Britain’s deposit-insurance scheme guaranteed fully only the first £2,000 of deposits, and then 90 percent of only the next £33,000.

Lines continued to form the next day, Saturday. 13 On Monday, September 17, shares opened 31 percent lower. With lines forming again. Alistair Darling intervened, pledging that the government would guarantee all deposits. Northern Rock was eventually nationalized on February 17, 2008. The run was halted. The man in the street was rightly upset at the failure to stop a bank run. The Bank of England knew well before it failed that Northern Rock was in trouble and did nothing about it. It was obvious that if Northern Rock, which depended on access to wholesale money markets and had relatively few depositors, was in trouble so would be others that were dependent on that source of funding.

“Preferred Hours of Work and Corresponding Earnings.” Monthly Labor Review (November): 40–44. Shiller, R. J. 1997. “Why Do People Dislike Inflation?” In Reducing Inflation: Motivation and Strategy, ed. C. Romer and D. H. Romer, 13–70. Chicago: University of Chicago Press. Shin, H. S. 2009. “Reflections on Northern Rock: The Bank Run That Heralded the Global Financial Crisis.” Journal of Economic Perspectives 23 (1): 101–11. Shiskin, J. 1976. “Employment and Unemployment: The Doughnut and the Hole.” Monthly Labor Review (February): 3–10. Silver, N. 2016. “Education, Not Income, Predicted Who Would Vote for Trump.” http://FiveThirtyeight.com, November 22.


pages: 354 words: 92,470

Grave New World: The End of Globalization, the Return of History by Stephen D. King

"World Economic Forum" Davos, 9 dash line, Admiral Zheng, air freight, Alan Greenspan, Albert Einstein, Asian financial crisis, bank run, banking crisis, barriers to entry, Berlin Wall, Bernie Sanders, bilateral investment treaty, bitcoin, blockchain, Bonfire of the Vanities, borderless world, Bretton Woods, Brexit referendum, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, collateralized debt obligation, colonial rule, corporate governance, credit crunch, currency manipulation / currency intervention, currency peg, currency risk, David Ricardo: comparative advantage, debt deflation, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, Edward Snowden, eurozone crisis, facts on the ground, failed state, Fall of the Berlin Wall, falling living standards, floating exchange rates, Francis Fukuyama: the end of history, full employment, George Akerlof, global supply chain, global value chain, Global Witness, Great Leap Forward, hydraulic fracturing, Hyman Minsky, imperial preference, income inequality, income per capita, incomplete markets, inflation targeting, information asymmetry, Internet of things, invisible hand, Jeremy Corbyn, joint-stock company, Kickstarter, Long Term Capital Management, low interest rates, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, middle-income trap, moral hazard, Nixon shock, offshore financial centre, oil shock, old age dependency ratio, paradox of thrift, Peace of Westphalia, plutocrats, post-truth, price stability, profit maximization, quantitative easing, race to the bottom, rent-seeking, reserve currency, reshoring, rising living standards, Ronald Reagan, Savings and loan crisis, Scramble for Africa, Second Machine Age, Skype, South China Sea, special drawing rights, technology bubble, The Great Moderation, The Market for Lemons, the market place, The Rise and Fall of American Growth, trade liberalization, trade route, Washington Consensus, WikiLeaks, Yom Kippur War, zero-sum game

According to the IMF, ‘In 1966, foreign central banks and governments held over 14 billion US dollars. The United States had $13.2 billion in gold reserves, but only $3.2 billion of that was available to cover foreign dollar holdings. The rest was needed to cover domestic holdings.’2 Put another way, the entire financial system was vulnerable to a public sector version of a bank run. If other nations thought there was any risk that their dollar holdings would be devalued, they would sensibly demand that their reserves should immediately be converted into gold. If, however, everyone thought that way, then devaluation would become inevitable. The link between dollars and gold established by Harry Dexter White in the 1940s was ultimately an act of faith: by the mid-1960s, however, faith was in short supply.

With state after state declaring a bank holiday, something had to be done. The answer came partly in the form of deposit insurance. As an emergency measure in direct response to the March meltdown, Congress agreed to offer insurance protection to each depositor up to a maximum of $2,500 ($44,800 in 2015 US dollars) in the hope that bank runs would be stymied. In July of the following year, the level of protection was raised to $5,000 ($89,000 in 2015 US dollars). The policy worked, to the extent that the financial system was stabilized and confidence returned. It also, however, introduced moral hazard. Thanks to deposit insurance, most depositors no longer had to worry about what their bank was up to: their money was safe, come what may.


pages: 323 words: 95,188

The Year That Changed the World: The Untold Story Behind the Fall of the Berlin Wall by Michael Meyer

"World Economic Forum" Davos, Ayatollah Khomeini, bank run, Berlin Wall, Bonfire of the Vanities, Bretton Woods, BRICs, call centre, disinformation, Dr. Strangelove, Fall of the Berlin Wall, falling living standards, Francis Fukuyama: the end of history, guns versus butter model, haute couture, mass immigration, Mikhail Gorbachev, military-industrial complex, mutually assured destruction, Prenzlauer Berg, public intellectual, Ronald Reagan, Ronald Reagan: Tear down this wall, union organizing

Bush on, 2, 5 fall of, in Bulgaria, 190–191 fall of, in Czechoslovakia, 28, 114, 128, 135–143, 175–190, 205–206 fall of, in GDR, 163–174, 203–205 fall of, in Hungary, 28, 29–39, 41–42, 46, 61, 66–74, 125, 128, 137, 139–140, 143–145, 206–207, 228–231, 236 fall of, in Poland, 28, 35–36, 43–54, 125, 128–133, 137, 139–140, 205 fall of, in Romania, 105–111, 193–201 fall of, throughout Eastern Europe, 41–42, 48, 54, 62, 173–174, 204 oppression in, 36 Reagan and, 13 as term, 224 See also Politburo Constantinescu, Emil, 201 consumer goods, 171–172, 177, 198–199 containment policy, 5, 61 Cooper, Gary, 79 Cornea, Doina, 197–198 counterculture, 21 Cousteau, Jacques, 95 crash of 2008, 218 cult of personality, 110 Cuthbertson, Ian, 228 Czechoslovakia denouement, 205–206 fall of Berlin Wall and, 8 fall of communism in, 28, 114, 128, 135–143, 175–190, 205–206, 233 Prague Spring (1968), 39, 45 refugees from GDR and, 122–123, 135, 141, 148, 152–153 reopening of border with GDR, 158–159 as totalitarian state, 135–143 Velvet Revolution (Prague; 1989), 170, 173, 175–190, 236 Warsaw Pact invasion of (1968), 105–106, 205 See also Prague Dalai Lama, 135, 206 Danner, Mark, 237 Davis, John, 231 DDR Museum (Berlin), 224 death strip (Berlin Wall), 16–18 democracy in Czechoslovakia, 185, 186, 206 in Eastern Europe, 99 in Hungary, 29–32, 41, 55–58, 110, 230–231 in Poland, 58–61, 79–84, 94, 110, 128–133, 225–226, 229–230 Reagan and, 3 U.S., 29, 30, 41 Democratic Forum, 97–99, 99 détente, 5, 61 Deutsche Bank, 73 Diensthier, Jiri, 233 Diepgen, Eberhard, 13 Dietrich, Marlene, 4 Dinescu, Mircea, 197–198 Dissolution (Maier), 163–164, 230–231, 232, 234, 235 Dresden bank runs in, 165 Freedom Train and, 124, 152–153, 154 refugees from GDR and, 117, 124, 135, 152–153, 160 rise of opposition, 152–153, 158 Dubcek, Alexander, 45, 177, 186–187, 226 Duberstein, Kenneth, 11 Dukakis, Michael, 39–40 East Berlin fall of Berlin Wall, 5–9, 65–76, 88–94, 165–173, 203–204 Jubilee of 1989 and, 115, 147–152 May Day (1989), 65–66, 69–70, 228 refugees from GDR and, 119–120, 160–161 rise of opposition, 158 See also Berlin; German Democratic Republic (GDR) Eastern Europe collapse of communism throughout, 41–42, 48, 54, 62, 173–174, 204 revolutions in, 14, 84, 216 Soviet withdrawal from, 12, 38–39, 91 See also names of specific countries East Germany.

Nikolaus Cathedral (Prague), 142 Saint Sebastian, 2 Sakharov, Andrei, 36 samizdat, 32 Schabowski, Gunter collapse of GDR and, 165–173, 204–205, 234–235 fall of Berlin Wall and, 7–10, 65, 69–70, 91, 165–173, 223, 234 Politburo and, 140–141, 148–150, 165–173 refugees from GDR and, 116–117, 120, 123–124, 133–135, 232 repudiation of communism, 204–205 rise of opposition in GDR, 155–156, 158 at Warsaw Pact summit (Bucharest; 1989), 93–94 Schirndling, 160 Schmidt, Helmut, 119 Schultz, George, 61 Schultz, Kurt-Werner, 103 Schumacher, Hans, 236 Schurer, Gerhard, 164, 235 Schwartz, Stephen, 224 Schwerin, bank runs in, 165 Scoblic, Peter, 237–238 Scowcroft, Brent, 9, 40, 60, 61, 95, 224–225, 227, 231, 232 SEATO, 21 secret police, 11–12, 25, 53, 65, 104, 106, 114, 134–136, 140, 151–152, 157, 191, 194–198, 201 Securitate (secret police in Romania), 106, 191, 194–198, 201 September 11, 2001, 2, 215 Shevardnadze, Eduard, 148 fall of Berlin Wall and, 90–91 German reunification proposal and, 125–126 refugees from GDR and, 118 replaces Gromyko, 12 Shultz, George, 75, 227 Siani-Davies, Peter, 236 Sicherman, Harvey, 227 Siegessäule (Berlin), 15 Sieland, Gisela, 19 Skoda, Jan, 185 Skoda autoworks, 185 Sleepwalking through History (Hutchings), 227 Slum Clearance (Havel), 206 Smith, Stephen, 128, 141–142 socialism Gorbachev and, 56 as term, 224 Socialist Unity Party, 26 Society for a Merrier Present (Czechoslovakia), 139 soft power, 13–14 Solidarity (Poland) elections of 1989, 79–84, 128–133, 225–226, 229–230, 233 fall of communism and, 28, 32, 35–36 Jaruzelski embraces, 45–46, 50–54, 205 origins of, 47, 52, 94 in revolution of 1989, 47–54 rise of, 50–54, 58–61 uprising of 1980, 43–46 Somalia, 210 Sopron, Hungary, Pan-European Picnic (1989), 97–104 Soviet Union, former ascent of Gorbachev within, 11–14, 25 Brezhnev Doctrine and, 39, 45, 63 collapse of, 5, 14, 45, 62, 71, 204 fall of Berlin Wall, 5–10, 90–91 fall of communism in Czechoslovakia, 28 fall of communism in Hungary, 28, 29–39, 41–42, 66–74 fall of communism in Poland, 28 flaws of Soviet system, 11–12 Hungarian revolt of 1956, 34–35 Hungary and, 38 impact of Cold War and.


pages: 329 words: 95,309

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

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

In particular, the fact that Second Life allowed real commerce to be transacted by converting real US dollars to virtual dollars, meant that everyone started to test commerce in virtual worlds through the service. For example, several banks invested in major projects in Second Life, including ING, Wells Fargo, SAXO Bank and Deutsche Bank. However, several banks also operated in Second Life that were managed by guys in their bedrooms. These included banks such as Ginko Bank, run by a Brazilian chap at home. The trouble Ginko Bank experienced started when internet gambling was forced to close under US Laws. The management of Second Life decided that they also had to close access to gambling in virtual worlds in July 2007 to comply with this policy, which led to a major run on the virtual banks.

Second Life’s operators were worried that this might affect them, and hence they banned gambling too. What the operators of Second Life did not realise is that gambling was really popular in their virtual world and, as a result of the gambling lockdown, many users wanted to withdraw their funds. So began a small bank run, with one of the largest banks in Second Life at this time being Ginko Bank. Ginko Bank had L$300 million in assets – about US$1.5 million in real money. As the bank saw a mass withdrawal of funds – around L$100 million in a couple of days – the bank’s owner deleted his Second Life account. Yes, you guessed it, Ginko Bank was just a virtual bank being run by a Sao Paolo internet freak, Andre Sanchez, from his bedroom.


pages: 346 words: 90,371

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

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

The story is a remarkable insight into the way in which property and land in the UK has become financialised over the past century. Northern Rock was a bank when, at the height of the financial crisis in February 2008, it was nationalised by the government. Six months earlier, customers were queuing outside its doors to withdraw their cash in the first genuine bank run in the UK since the nineteenth century. But only seven years before Northern Rock was a quite different kind of institution: it was a building society. Over time, many building societies merged, enabling the pooling of liquidity that allowed for larger home building schemes and mortgage financing.

Banks and other providers of liquidity were suddenly no longer prepared to roll over existing wholesale funding as trust between financial institutions collapsed. Because of its heavy money-market exposure, Northern Rock swiftly ran in to a liquidity crisis. By 14 September 2007, queues were forming outside its doors as people sought to withdraw their deposits: a full-on bank run. The bank was swiftly nationalised. The bank’s shareholders lost all of their money. On 1 January 2010 the government split the bank in to two parts: ‘assets’ and ‘banking’. The bad ‘assets’ part, called UK Asset Resolution (Ukar), was made up of the Granite assets as well as the bad loans from another collapsed demutualised building society, the Bradford and Bingley.


pages: 408 words: 94,311

The Great Depression: A Diary by Benjamin Roth, James Ledbetter, Daniel B. Roth

bank run, banking crisis, book value, business cycle, buy and hold, California gold rush, classic study, collective bargaining, currency manipulation / currency intervention, deindustrialization, financial independence, Joseph Schumpeter, low interest rates, market fundamentalism, military-industrial complex, moral hazard, short selling, statistical model, strikebreaker, union organizing, urban renewal, Works Progress Administration

Insurance for the unemployed and guaranteed Social Security income for the elderly and infirm are standard features of the American economy; without them, the impact of current recessions on individuals could easily be as bad as it was during the Depression. On the federal policy level, the government guarantee of bank deposits up to a certain monetary amount makes panicky bank runs less likely and less damaging (though by no means impossible, and of course there are those who argue that such guarantees are harmful; see the above observation about the earth and the sun). And when banks do close, the process is orderly and the impact on the overall financial system minimized.

The stock market started a decline in October 1929 which continued intermittently until the summer of 1932. At that time good stocks and bonds were selling at 5% and 10% of their 1929 prices. Sheet and Tube had fallen from 175 to 6; Republic from 140 to 2; U.S. Steel from 200 to 20; Western Union sold at 13; Penn RR at 6, etc. Along with this, business was at a stand-still. Bank runs were starting; more than 40,000 people in Youngstown were in bread lines. It was a terrible time. In the meanwhile the voice of the demagog began to be heard throughout the land. Socialism, Communism, more equitable distribution of wealth, new currency and other panaceas became ordinary table talk. 8/12/46 We had very little inflation during the past ten years although it has been widely discussed.


pages: 605 words: 169,366

The World's Banker: A Story of Failed States, Financial Crises, and the Wealth and Poverty of Nations by Sebastian Mallaby

"World Economic Forum" Davos, Alan Greenspan, Alvin Toffler, Asian financial crisis, bank run, battle of ideas, Big bang: deregulation of the City of London, Bretton Woods, capital controls, clean water, Dr. Strangelove, Dutch auction, export processing zone, failed state, financial independence, Francis Fukuyama: the end of history, gentleman farmer, guns versus butter model, Hernando de Soto, Kenneth Rogoff, Kickstarter, land reform, land tenure, lateral thinking, low interest rates, market bubble, Martin Wolf, microcredit, oil shock, Oklahoma City bombing, old-boy network, Paul Samuelson, plutocrats, purchasing power parity, radical decentralization, rolodex, Ronald Reagan, Silicon Valley, special economic zone, structural adjustment programs, the new new thing, trade liberalization, traveling salesman, War on Poverty, Westphalian system, Yom Kippur War

Not surprisingly, this halfhearted effort to excise the cancer in the banking system failed to instill confidence. Coupled with a fatal IMF miscalculation, it proved disastrous. Toward the end of its mission, the IMF had debated whether to shore up the remaining banks by announcing a guarantee on deposits. One side insisted that a guarantee was essential to prevent a bank run; the other side objected that a blanket guarantee would rescue rich depositors who had made millions from Indonesia’s corrupt system, and who had entrusted their money to sleazy banks with their eyes wide open. In the end, the fear of rewarding crony depositors won out, and only the smallest deposits were guaranteed.

In Thailand the IMF mistakenly urged high interest rates and cuts in government spending, on the theory that tough anti-inflation policies were needed to keep yet more investors from dumping the currency; as a result, Thailand’s subsequent recession was worse than it needed to be. In Indonesia the IMF had embarrassed itself again when its attempt to stabilize the banks had instead precipitated a bank run. In South Korea the IMF had put together a bailout that was too small to turn investor sentiment around, so that a second rescue had to be thrown together three weeks later. Stiglitz could not contain his glee. He lambasted the IMF, focusing particularly on two errors that resonated with the veterans of the Fifty Years Is Enough campaign, who regarded both the IMF and the World Bank as pushers of free-market dogma that harmed poor people.

Jaycox interview, January 9, 2003. 53. Brian Falconer interview, January 15, 2003. 54. Tony Burdon interview, May 27, 2003. 55. The Bank has three principal sources of income: fees, which are charged to countries that borrow from the soft-loan IDA operations, and which are also levied on donor grants to Bank-run trust funds; profits on market-based lending; and profits on investing reserves. If the Bank ceased market-based lending, it would lose the second of these sources, forgoing $800 million or so in annual revenue. Some analysts suggest that this would not hurt too much, since the Bank would retain something like $800 million from fees plus $1 billion a year in revenue from investing reserves.


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

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

The serious point here is that life is blurring between the real and the virtual, and financial services are no exception. People are Money and Financial Services 131 already exchanging real money for virtual goods and vice versa, so why not invent new products and services for this market? Several US-based retailers (including a real bank) have opened virtual branches inside virtual games, so why not open a bank-run virtual currency-trading exchange where gamers can exchange their World of Witchcraft EU gold or Second Life Linden dollars for real gold or US dollars? If that’s a bit too weird for you, how about a real credit card that earns the virtual currency of your choice when you buy a pair of real jeans or an iPod?

But in a downturn, security will be paramount and new entrants and foreign banks will be rejected in favor of long-established local names. Except, that is, if the name includes words like “Northern” and “Rock”. I was in Australia in 2007 when the UK’s fifth-largest mortgage lender became the first bank in Britain since 1866 to be the subject of a bank run. There were people queuing down high streets all over the country trying to get their cash out, until the government agreed to use taxpayers’ money to guarantee their savings. It effectively said that it would bail out anyone who invested 140 FUTURE FILES in a major UK financial institution that had forgotten that there should be some balance between borrowing and lending.


Layered Money: From Gold and Dollars to Bitcoin and Central Bank Digital Currencies by Nik Bhatia

Alan Greenspan, bank run, basic income, Bear Stearns, bitcoin, blockchain, Bretton Woods, British Empire, central bank independence, Cornelius Vanderbilt, Credit Default Swap, cryptocurrency, distributed ledger, fiat currency, fixed income, Fractional reserve banking, interest rate derivative, interest rate swap, Isaac Newton, joint-stock company, Kickstarter, Long Term Capital Management, margin call, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, offshore financial centre, quantitative easing, reserve currency, risk free rate, Satoshi Nakamoto, slashdot, smart contracts, time value of money, tulip mania, universal basic income

This reverses when the money pyramid enters contraction and the objective difference between money and money-like instruments is suddenly pronounced. Instruments that previously had a high degree of perceived trust are no longer desired, and their owners dump them for instruments higher in the hierarchy, such as gold coins. Contractions can result in redemption requests, called bank runs, and eventually financial crises. These crises can be more easily thought of as attempts to climb the pyramid of money, as holders of lower-layer money scramble to secure a superior, higher-layer form of money. The Clearance Problem As layered money evolved to solve problems with coin-money, new problems arose.


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

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

Counterparty risk is hard to manage, in part, because the periods when an investor most needs access to their funds are often the periods when the parties holding the funds are the least able to return them (usually because they need them for their own emergency). Emergencies cause cascading effects. A common counterparty risk is a bank run. This is when a large number of depositors want their money at the same time and the bank doesn't have enough funds on hand. The result could be the bank simply goes out of business and then, hopefully, government insurance takes over. That's counterparty risk. In order to meet the requirement of absolute safety, Permanent Portfolio investors shouldn't have to evaluate the creditworthiness of the party to whom they are entrusting their wealth.

This business model means that at any given time the bank will only have a small amount of its depositors' money available for withdrawal (the rest is loaned out to the bank's customers and is tied up in their car, home, business, etc.). But what happens when too many people try to withdraw their money from the bank at the same time? This situation causes the familiar bank runs. The government has attempted to ease the fear of this sort of event through the Federal Deposit Insurance Corporation (FDIC), which was created in the 1930s and insures all deposits up to a certain amount. Although FDIC deposit insurance has worked to date, the reality is that the FDIC actually has very few assets in relation to its liabilities.


pages: 405 words: 109,114

Unfinished Business by Tamim Bayoumi

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

The overall result, however, is similar and since the data does not go back reliably over time I use the simpler definition of debt and equity flows. 5.There is a similar, if less direct, increase in risk for investors who lend in dollars, as a depreciation in the value of the pound increases the cost of dollar repayments for all foreign investors, thereby making all of the loans riskier. 6.Jeanne and Zettelmeyer (2005) provide a survey. See Krugman (1992) on the first generation models and Obstfeld (1996) on the second generation. 7.This is closely related to earlier models of bank runs, in which a run is always a risk unless government insurance gives depositors the assurance that their money is safe. Diamond and Dybvig (1983). 8.Bergsten and Green (2016). 9.IMF (2012b) paragraph 18 and references therein. 10.Garber (1993) contains a more detailed description of the collapse of the Bretton Woods system. 11.Eichengreen (1992). 12.Eichengreen (2008) contains a description of the evolution of capital market regulation over time. 13.Skidelsky (2001). 14.The Bretton Woods system came to maturity in 1960 after the termination of the European Payments Union (EPU), an arrangement that curtailed even current account transactions because of the severe shortages of dollars after the war. 15.Federal Deposit Insurance Corporation (1997b), Cline (1984 and 1995), Cohen (1992) and Dooley (1994) contain descriptions. 16.Quoted in Federal Deposit Insurance Corporation (1997b), pp. 197–8. 17.Ibid., p. 204. 18.Seidman (2000), pp. 127–8. 19.L.

Davis Polk (2015): “Federal Reserve’s Proposed Rule on Total Loss-Absorbing Capacity and Eligible Long-Term Debt”, available at davispolk.com. Dermine (2002): Jean Dermine, “European Banking: Past, Present, and Future”, paper given at The Transformation of the European Financial System, Second ECB Central Banking Conference, Frankfurt am Main, October 24–25, 2002. Diamond and Dybvig (1983): Douglas W. Diamond and Philip H. Dybvig, “Bank Runs, Deposit Insurance, and Liquidity”, Journal of Political Economy, Vol. 91, No. 3 (June 1983), pp. 401–19. Dooley (1994): Michael P. Dooley, “A Retrospective on the Debt Crisis”, NBER Working Paper No. 4963, December 1994. Edwards (1999): Franklin R. Edwards, “Hedge Funds and the Collapse of Long-Term Capital Management”, Journal of Economic Perspectives, Vol. 13, No. 2 (Spring 1999), pp. 189–210.


pages: 378 words: 110,518

Postcapitalism: A Guide to Our Future by Paul Mason

air traffic controllers' union, Alan Greenspan, Alfred Russel Wallace, bank run, banking crisis, banks create money, Basel III, basic income, Bernie Madoff, Bill Gates: Altair 8800, bitcoin, Bletchley Park, Branko Milanovic, Bretton Woods, BRICs, British Empire, business cycle, business process, butterfly effect, call centre, capital controls, carbon tax, Cesare Marchetti: Marchetti’s constant, Claude Shannon: information theory, collaborative economy, collective bargaining, commons-based peer production, Corn Laws, corporate social responsibility, creative destruction, credit crunch, currency manipulation / currency intervention, currency peg, David Graeber, deglobalization, deindustrialization, deskilling, discovery of the americas, disinformation, Downton Abbey, drone strike, en.wikipedia.org, energy security, eurozone crisis, factory automation, false flag, financial engineering, financial repression, Firefox, Fractional reserve banking, Frederick Winslow Taylor, fulfillment center, full employment, future of work, game design, Glass-Steagall Act, green new deal, guns versus butter model, Herbert Marcuse, income inequality, inflation targeting, informal economy, information asymmetry, intangible asset, Intergovernmental Panel on Climate Change (IPCC), Internet of things, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Perry Barlow, Joseph Schumpeter, Kenneth Arrow, Kevin Kelly, Kickstarter, knowledge economy, knowledge worker, late capitalism, low interest rates, low skilled workers, market clearing, means of production, Metcalfe's law, microservices, middle-income trap, Money creation, money: store of value / unit of account / medium of exchange, mortgage debt, Network effects, new economy, Nixon triggered the end of the Bretton Woods system, Norbert Wiener, Occupy movement, oil shale / tar sands, oil shock, Paul Samuelson, payday loans, Pearl River Delta, post-industrial society, power law, precariat, precautionary principle, price mechanism, profit motive, quantitative easing, race to the bottom, RAND corporation, rent-seeking, reserve currency, RFID, Richard Stallman, Robert Gordon, Robert Metcalfe, scientific management, secular stagnation, sharing economy, Stewart Brand, structural adjustment programs, supply-chain management, technological determinism, The Future of Employment, the scientific method, The Wealth of Nations by Adam Smith, Transnistria, Twitter Arab Spring, union organizing, universal basic income, urban decay, urban planning, vertical integration, Vilfredo Pareto, wages for housework, WikiLeaks, women in the workforce, Yochai Benkler

Today there is no Geneva Convention when it comes to the fight between elites and the people they govern: the robo-cop has become the first line of defence against peaceful protest. Tasers, sound lasers and CS gas, combined with intrusive surveillance, infiltration and disinformation, have become standard in the playbook of law enforcement. And the central banks, whose operations most people have no clue about, are prepared to sabotage democracy by triggering bank runs where anti-neoliberal movements threaten to win – as they did with Cyprus in 2013, then Scotland and now Greece. The elite and their supporters are lined up to defend the same core principles: high finance, low wages, secrecy, militarism, intellectual property and energy based on carbon. The bad news is that they control nearly every government in the world.

Look in the window and you’ll see ads for jobs at the minimum wage – but which require more than minimum skill. Press operatives, carers on night shift, distribution centre workers: jobs that used to pay decent wages now pay as little as legally possible. Somewhere else, out of the limelight, you will come across people picking up the pieces: food banks run by churches and charities; Citizens’ Advice Bureaux whose main business has become advising those swamped by debt. Just one generation earlier these streets were home to thriving real businesses. I remember the main street of my home town, Leigh, in northwest England, in the 1970s, thronged on Saturday mornings with prosperous working-class families.


pages: 358 words: 106,729

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

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

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

Perhaps a better question is whether banks should have deposit insurance at all. This may be a strange question to ask at a time when governments all over the world have guaranteed all the debt issued by their banks, not just the small, already insured deposits. But that is precisely the reason for my question. Deposit insurance is not meant to quell panics by preventing bank runs: the government, as we have recently seen, takes care of that. Instead, it merely protects individual banks from market discipline. Put differently, with implicit government guarantees all over the place, should we not strive to remove explicit government guarantees where we can? One reason for insuring deposits was to provide a safe means of savings to households where none existed.


pages: 338 words: 106,936

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

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

He has just enough money that, at the close of the business day, the bank has $1 left and they can shut the doors for the night without going out of business. They have survived the run, but at the expense of Bailey’s dreams of traveling the world. Bank runs were fairly common during the Depression, and even more common during the nineteenth century. They were associated with financial panics, periods in which the economy seemed especially uncertain and no one was sure which banks would survive. A small piece of news that a particular bank was endangered could practically ensure that the bank would fail. Today, bank runs in the United States are a thing of the past, because in 1934 the U.S. government instituted the Federal Deposit Insurance Corporation (FDIC), which insures all consumer bank deposits.


pages: 385 words: 111,807

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

"there is no alternative" (TINA), Affordable Care Act / Obamacare, Alan Greenspan, Albert Einstein, antiwork, AOL-Time Warner, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, Bear Stearns, Berlin Wall, bilateral investment treaty, borderless world, Bretton Woods, British Empire, call centre, capital controls, central bank independence, Charles Babbage, collateralized debt obligation, colonial rule, Corn Laws, corporate governance, corporate raider, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, discovery of the americas, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, falling living standards, financial deregulation, financial engineering, financial innovation, flying shuttle, Ford Model T, Francis Fukuyama: the end of history, Frederick Winslow Taylor, full employment, George Akerlof, Gini coefficient, Glass-Steagall Act, global value chain, Goldman Sachs: Vampire Squid, Gordon Gekko, Great Leap Forward, greed is good, Gunnar Myrdal, Haber-Bosch Process, happiness index / gross national happiness, high net worth, income inequality, income per capita, information asymmetry, intangible asset, interchangeable parts, interest rate swap, inventory management, invisible hand, Isaac Newton, James Watt: steam engine, Johann Wolfgang von Goethe, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, knowledge economy, laissez-faire capitalism, land bank, land reform, liberation theology, manufacturing employment, Mark Zuckerberg, market clearing, market fundamentalism, Martin Wolf, means of production, Mexican peso crisis / tequila crisis, Neal Stephenson, Nelson Mandela, Northern Rock, obamacare, offshore financial centre, oil shock, open borders, Pareto efficiency, Paul Samuelson, post-industrial society, precariat, principal–agent problem, profit maximization, profit motive, proprietary trading, purchasing power parity, quantitative easing, road to serfdom, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, scientific management, Scramble for Africa, search costs, shareholder value, Silicon Valley, Simon Kuznets, sovereign wealth fund, spinning jenny, structural adjustment programs, The Great Moderation, The Market for Lemons, The Spirit Level, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade liberalization, transaction costs, transfer pricing, trickle-down economics, Vilfredo Pareto, Washington Consensus, working-age population, World Values Survey

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

Under this insurance scheme, the government commits itself to compensate all depositors up to a certain amount (for example, €100,000 in the Eurozone countries at the moment), if their banks are unable to pay their money back. With this guarantee, savers do not have to panic and withdraw their deposits at the slightest fall in confidence in their banks. This significantly reduces the chance of a bank run. Another way to manage confidence in the banking system is to restrict the ability of the banks to take risk. This is known as prudential regulation. One important measure of prudential regulation is the ‘capital adequacy ratio’. This limits the amount that a bank can lend (and thus the liabilities it can create in the form of deposits) to a certain multiple of its equity capital (that is, the money provided by the bank’s owners, or shareholders).


pages: 408 words: 108,985

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

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

Reforming Europe’s financial system has to go hand in hand with reforming the dysfunctional macro-institutional architecture of the euro, as we discussed in Chapter 2. An unreformed shadow banking system both increases the risk of a crisis and undermines the ability of the ECB to respond. A lender of last resort that can address a bank run caused by retail deposit withdrawals faces a far greater challenge when market liquidity evaporates and falling securities prices prompt a run on wholesale funding. In this latter case, the scale of required intervention is greater and the mechanisms for preventing systemic collapse are less straightforward.

Such forbearance may prove essential, especially in the absence of the maneuverability provided by flexible exchange rates and differential interest rates. Common resolution When all else fails, Europe will need a mechanism for the resolution of troubled banks that winds them down without triggering a systemic crisis. When a single, isolated bank runs into a problem, resolution is straightforward: one wants to protect depositors, promote the continued flow of credit, and minimize the cost to taxpayers. The difficulty arises in a crisis, when many banks are in trouble at the same time. The United States created a new process for complex banks (Orderly Liquidation Authority) and a requirement that firms plan for their own demise (living wills) to supplement the previous system in which the Federal Deposit Insurance Corporation wound down banks while protecting depositors.


pages: 297 words: 108,353

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

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

Banks had lent considerable sums of money to investors and merchants who had been tempted by the rising stock and commodity prices, and were therefore extremely vulnerable to a downturn.76 By the autumn, several banks in the west of England had collapsed, unsettling the money markets and the Bank of England. Then, at the beginning of December 1825, a major 54 THE FIRST EMERGING MARKET BUBBLE London bank, Pole, Thornton and Company, which had been investing in risky securities, failed after experiencing a run. This collapse was followed by a series of bank runs and failures of English country banks. The panic peaked on 14 December 1825, the notorious ‘day of terror’, in which many London and country banks closed their doors; there were few towns in England where the ‘stoppage of local banks had not occurred or was not feared hourly’.77 According to The Times, in the week after the day of terror, banks all over England and Wales faced severe runs.78 Many of the banks which closed during December eventually reopened.

The clogging up of the securitisation machine and the freezing of the interbank market had a major impact on Northern Rock, then the leading British mortgage bank. On 13 September 2007, it received liquidity assistance from the Bank of England. However, when news of this leaked out, its depositors mounted a run on the bank which ended only when Chancellor Alistair Darling guaranteed its deposits. This was Britain’s first bank run in over 150 years. On 17 February 2008, Northern Rock was nationalised. About one month later, the US bank Bear Stearns was rescued by the Federal Reserve and taken over by JP Morgan for only a fraction of what its market value had been the previous week. Over the next few months, mortgage delinquencies continued to soar, MBSs continued to default and banks reported ever larger losses.


pages: 113 words: 37,885

Why Wall Street Matters by William D. Cohan

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

“As has been frequently observed, the recent financial crisis began, like most banking crises, with a run on short-term liabilities by investors who had come to doubt the value of the assets they were funding through various kinds of financial intermediaries,” he said in his July 2016 speech. He noted correctly that unlike the bank runs that typified the 1930s, when small depositors lined up to get their money out, in 2008 it was the institutions that ran for the exits without having to line up at all. They got out simply by—literally—pushing a button on their computers. What happened next, Tarullo explained, was that the Wall Street banks, “lacking enough liquidity to repay all the counterparties who declined to roll over their investments,” were forced “into fire sales that further depressed asset prices, thereby reducing the values of assets held by many other intermediaries, raising margin calls, and leading to still more asset sales.”


London Under by Peter Ackroyd

bank run, dark matter, The Spirit Level

As the price of gold rises ever higher many London banks are building larger and deeper vaults to accommodate the precious metal; they are great caverns of treasure. It is estimated that 250 million ounces of gold are concealed beneath the ground. But no London cellar is more wonderful than the vaults of the Bank of England. They contain the second biggest hoard of gold bullion on the planet. A network of tunnels, radiating out from the bank, runs beneath the City streets. Several thousand bars of 24-carat gold, each one weighing 28 pounds, are stored within them. They may be said to light up the bowels of the earth. You would not know, on walking along High Holborn or Whitehall, that there is a secret world beneath your feet. There is no echo, no sign or token, of corridors and chambers below the surface.


pages: 403 words: 119,206

Toward Rational Exuberance: The Evolution of the Modern Stock Market by B. Mark Smith

Alan Greenspan, bank run, banking crisis, book value, business climate, business cycle, buy and hold, capital asset pricing model, compound rate of return, computerized trading, Cornelius Vanderbilt, credit crunch, cuban missile crisis, discounted cash flows, diversified portfolio, Donald Trump, equity risk premium, Eugene Fama: efficient market hypothesis, financial independence, financial innovation, fixed income, full employment, Glass-Steagall Act, income inequality, index arbitrage, index fund, joint-stock company, junk bonds, locking in a profit, Long Term Capital Management, Louis Bachelier, low interest rates, margin call, market clearing, merger arbitrage, Michael Milken, money market fund, Myron Scholes, Paul Samuelson, price stability, prudent man rule, random walk, Richard Thaler, risk free rate, risk tolerance, Robert Bork, Robert Shiller, Ronald Reagan, scientific management, shareholder value, short selling, stocks for the long run, the market place, transaction costs

Shortly thereafter, the Banking Act of 1933, to become better known as the Glass-Steagall Act, gave the Federal Reserve more control over member banks’ speculative activities and drew a distinct line between the activities of commercial and investment banks by requiring that commercial banks divest themselves of investment affiliates. The legislation also created the Federal Deposit Insurance Corporation to insure bank deposits, an extremely important innovation that would virtually eliminate bank runs in the future. Neither the Securities Act of 1933 nor Glass-Steagall met strong resistance from the Wall Street community, which recognized that some form of new regulation was inevitable and found these first pieces of New Deal legislation to be at least tolerable. Overt regulation of the market, however, was a different matter.

At the time of the 1963 “salad oil” debacle, the New York Stock Exchange had intervened to protect customers of Ira Haupt & Company, establishing an important precedent that led to the formation of the Securities Investor Protection Corporation, which removed a significant element of risk (brokerage firm failures) that had in the past led to stock market panics. The 1930s reform legislation that provided federal deposit insurance for banks had already greatly reduced the risk of bank runs, another former cause of panics. Now, in 1980, the Fed’s decision to effectively bail out the Hunts indicated a proactive willingness to intervene in the markets to forestall crises that, if left unchecked, could wreak havoc on the financial system and the stock market. This is an extremely important point.


pages: 393 words: 115,263

Planet Ponzi by Mitch Feierstein

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

The chairman of Northern Rock, Matt Ridley, was interrogated by British parliamentarians in the wake of the crisis‌—‌a crisis that had prompted the first bank run in Britain for 150 years. Instead of sounding apologetic or humble about his failures, Ridley sounded plaintive. He complained: ‘The idea that all markets would close simultaneously was unforeseen by any major authority. We were hit by an unexpected and unpredictable concatenation of events.’14 Well, duh! Of course you don’t expect the unexpected. That’s why you take precautions and prudently manage your risks accordingly. The fact that Britain hadn’t experienced a bank run for 150 years suggests that those precautions were hardly unknown to Ridley’s predecessors.


pages: 573 words: 115,489

Prosperity Without Growth: Foundations for the Economy of Tomorrow by Tim Jackson

"World Economic Forum" Davos, Alan Greenspan, bank run, banking crisis, banks create money, Basel III, basic income, biodiversity loss, bonus culture, Boris Johnson, business cycle, carbon footprint, Carmen Reinhart, Cass Sunstein, choice architecture, circular economy, collapse of Lehman Brothers, creative destruction, credit crunch, Credit Default Swap, critique of consumerism, David Graeber, decarbonisation, degrowth, dematerialisation, en.wikipedia.org, energy security, financial deregulation, Financial Instability Hypothesis, financial intermediation, full employment, Garrett Hardin, Glass-Steagall Act, green new deal, Growth in a Time of Debt, Hans Rosling, Hyman Minsky, impact investing, income inequality, income per capita, intentional community, Intergovernmental Panel on Climate Change (IPCC), Internet of things, invisible hand, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, laissez-faire capitalism, liberal capitalism, low interest rates, Mahatma Gandhi, mass immigration, means of production, meta-analysis, Money creation, moral hazard, mortgage debt, Murray Bookchin, Naomi Klein, negative emissions, new economy, ocean acidification, offshore financial centre, oil shale / tar sands, open economy, paradox of thrift, peak oil, peer-to-peer lending, Philip Mirowski, Post-Keynesian economics, profit motive, purchasing power parity, quantitative easing, retail therapy, Richard Thaler, road to serfdom, Robert Gordon, Robert Solow, Ronald Reagan, science of happiness, secular stagnation, short selling, Simon Kuznets, Skype, smart grid, sovereign wealth fund, Steve Jobs, TED Talk, The Chicago School, The Great Moderation, The Rise and Fall of American Growth, 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, Tragedy of the Commons, universal basic income, Works Progress Administration, World Values Survey, zero-sum game

The so-called Chicago plan – which calls for 100 per cent backing of bank deposits with government-issued money – was first put forward in the 1930s by the US economist Irving Fisher and supported most notably by the Chicago School economist Milton Friedman.38 There have been a number of recent calls to revive this idea – perhaps most surprisingly from the International Monetary Fund. A recent IMF working paper identifies several clear advantages to the plan, including: its ability to better control credit cycles, the potential to eliminate bank runs, and the effect of dramatically reducing both government debt and private debt. The plan would essentially return control of the money supply directly to the government.39 Similar proposals call for an end to banks’ power to create money and the implementation of a so-called ‘sovereign money’ system.

INDEX Locators in italic refer to figures absolute decoupling 84–6; historical perspectives 89–96, 90, 92, 94, 95; mathematical relationship with relative decoupling 96–101, 111 abundance see opulence accounting errors, decoupling 84, 91 acquisition, instinctive 68 see also symbolic role of goods adaptation: diminishing marginal utility 51, 68; environmental 169; evolutionary 226 advertising, power of 140, 203–4 Africa 73, 75–7; life-expectancy 74; philosophy 227; pursuit of western lifestyles 70; growth 99; relative income effect 58, 75; schooling 78 The Age of Turbulence (Greenspan) 35 ageing populations 44, 81 agriculture 12, 148, 152, 220 Aids/HIV 77 algebra of inequality see inequality; mathematical models alienation: future visions 212, 218–19; geographical community 122–3; role of the state 205; selfishness vs. altruism 137; signals sent by society 131 alternatives: economic 101–2, 139–40, 157–8; hedonism 125–6 see also future visions; post-growth macroeconomics; reform altruism 133–8, 196, 207 amenities see public services/amenities Amish community, North America 128 An Inquiry into the Nature and Causes of the Wealth of Nations (Smith) 123, 132 angelised growth see green growth animal welfare 220 anonymity/loneliness see alienation anthropological perspectives, consumption 70, 115 anti-consumerism 131 see also intrinsic values anxiety: fear of death 69, 104, 115, 212–15; novelty 116–17, 124, 211 Argentina 58, 78, 78, 80 Aristotle 48, 61 The Art of Happiness (Dalai Lama) 49 arts, Baumol’s cost disease 171–2 assets, stranded 167–8 see also ownership austerity policies xxxiii–xxxv, 189; and financial crisis 24, 42–3; mathematical models 181 Australia 58, 78, 128, 206 authoritarianism 199 autonomy see freedom/autonomy Ayres, Robert 143 backfire effects 111 balance: private interests/common good 208; tradition/innovation 226 Bank for International Settlements 46 bank runs 157 banking system 29–30, 39, 153–7, 208; bonuses 37–8 see also financial crisis; financial system basic entitlements: enterprise as service 142; income 67, 72–9, 74, 75, 76, 78; limits to growth 63–4 see also education; food; health Basu, Sanjay 43 Baumol, William 112, 147, 222, 223; cost disease 170, 171, 172, 173 BBC survey, geographical community 122–3 Becker, Ernest 69 Belk, Russ 70, 114 belonging 212, 219 see also alienation; community; intrinsic values Bentham, Jeremy 55 bereavement, material possessions 114, 214–15 Berger, Peter 70, 214 Berry, Wendell 8 Better Growth, Better Climate (New Climate Economy report) 18 big business/corporations 106–7 biodiversity loss 17, 47, 62, 101 biological perspectives see evolutionary theory; human nature/psyche biophysical boundaries see limits (ecological) Black Monday 46 The Body Economic (Stuckler and Basu) 43 bond markets 30, 157 bonuses, banking 37–8 Bookchin, Murray 122 boom-and-bust cycles 157, 181 Booth, Douglas 117 borrowing behaviour 34, 118–21, 119 see also credit; debt Boulding, Elise 118 Boulding, Kenneth 1, 5, 7 boundaries, biophysical see limits (ecological) bounded capabilities for flourishing 61–5 see also limits (flourishing within) Bowen, William 147 Bowling Alone (Putnam) 122 Brazil 58, 88 breakdown of community see alienation; social stability bubbles, economic 29, 33, 36 Buddhist monasteries, Thailand 128 buen vivir concept, Ecuador xxxi, 6 built-in obsolescence 113, 204, 220 Bush, George 121 business-as-usual model 22, 211; carbon dioxide emissions 101; crisis of commitment 195; financial crisis 32–8; growth 79–83, 99; human nature 131, 136–7; need for reform 55, 57, 59, 101–2, 162, 207–8, 227; throwaway society 113; wellbeing 124 see also financial systems Canada 75, 206, 207 capabilities for flourishing 61–5; circular flow of the economy 113; future visions 218, 219; and income 77; progress measures 50–5, 54; role of material abundance 67–72; and prosperity 49; relative income effect 55–61, 58, 71, 72; role of shame 123–4; role of the state 200 see also limits (flourishing within); wellbeing capital 105, 107–10 see also investment Capital in the 21st Century (Piketty) 33, 176, 177 Capital Institute, USA 155 capitalism 68–9, 80; structures 107–13, 175; types 105–7, 222, 223 car industry, financial crisis 40 carbon dioxide emissions see greenhouse gas emissions caring professions, valuing 130, 147, 207 see also social care Cat on a Hot Tin Roof (Williams) 213 causal path analysis, subjective wellbeing 59 Central Bank 154 central human capabilities 64 see also capabilities for flourishing The Challenge of Affluence (Offer) 194 change see alternatives; future visions; novelty/innovation; post-growth macroeconomics; reform Chicago school of economics 36, 156 children: advertising to 204; labour 62, 154; mortality 74–5, 75, 206 Chile xxxiii, xxxvii, 58, 74, 74, 75, 76 China: decoupling 88; GDP per capita 75; greenhouse gas emissions 91; growth 99; life expectancy 74; philosophy 7; post-financial crisis 45–6; pursuit of western lifestyles 70; relative income effect 58; resource use 94; savings 27; schooling 76 choice, moving beyond consumerism 216–18 see also freedom/autonomy Christian doctrine see religious perspectives chromium, commodity price 13 Cinderella economy 219–21, 224 circular economy 144, 220 circular flow of the economy 107, 113 see also engine of growth citizen’s income 207 see also universal basic income civil unrest see social stability Clean City Law, São Paulo 204 climate change xxxv, 22, 47; critical boundaries 17–20; decoupling 85, 86, 87, 98; fatalism 186; investment needs 152; role of the state 192, 198, 201–2 see also greenhouse gas emissions Climate Change Act (2008), UK 198 clothing see basic entitlements Club of Rome, Limits to Growth report xxxii, xxxiii, 8, 11–16, Cobb, John 54 collectivism 191 commercial bond markets 30, 157 commitment devices/crisis of 192–5, 197 commodity prices: decoupling 88; financial crisis 26; fluctuation/volatility 14, 21; resource constraints 13–14 common good: future visions 218, 219; vs. freedom and autonomy 193–4; vs. private interests 208; role of the state 209 common pool resources 190–2, 198, 199 see also public services/amenities communism 187, 191 community: future visions of 219–20; geographical 122–3; investment 155–6, 204 see also alienation; intrinsic values comparison, social 115, 116, 117 see also relative income effect competition 27, 112; positional 55–61, 58, 71, 72 see also struggle for existence complexity, economic systems 14, 32, 108, 153, 203 compulsive shopping 116 see also consumerism Conference of the Parties to the UN Framework Convention on Climate Change (CoP21) 19 conflicted state 197, 201, 209 connectedness, global 91, 227 conspicuous consumption 115 see also language of goods consumer goods see language of goods; material goods consumer sovereignty 196, 198 consumerism 4, 21, 22, 103–4, 113–16; capitalism 105–13, 196; choice 196; engine of growth 104, 108, 120, 161; existential fear of death 69, 212–15; financial crisis 24, 28, 39, 103; moving beyond 216–18; novelty and anxiety 116–17; post-growth economy 166–7; role of the state 192–3, 196, 199, 202–5; status 211; tragedy of 140 see also demand; materialism contemplative dimensions, simplicity 127 contraction and convergence model 206–7 coordinated market economies 27, 106 Copenhagen Accord (2009) 19 copper, commodity prices 13 corporations/big business 106–7 corruption 9, 131, 186, 187, 189 The Cost Disease: Why Computers get Cheaper and Health Care Doesn’t (Baumol) 171, 172 Costa Rica 74, 74, 76 countercyclical spending 181–2, 182, 188 crafts/craft economies 147, 149, 170, 171 creative destruction 104, 112, 113, 116–17 creativity 8, 79; and consumerism 113, 116; future visions 142, 144, 147, 158, 171, 200, 220 see also novelty/innovation credit, private: deflationary forces 44; deregulation 36; financial crisis 26, 27, 27–31, 34, 36, 41; financial system weaknesses 32–3, 37; growth imperative hypothesis 178–80; mortgage loans 28–9; reforms in financial system 157; spending vs. saving behaviour of ordinary people 118–19; and stimulation of growth 36 see also debt (public) credit unions 155–6 crises: of commitment 192–5; financial see financial crisis critical boundaries, biophysical see limits (ecological) Csikszentmihalyi, Mihalyi 127 Cuba: child mortality 75; life expectancy 74, 77, 78, 78; response to economic hardship 79–80; revolution 56; schooling 76 Cushman, Philip 116 Dalai Lama 49, 52 Daly, Herman xxxii, 54, 55, 160, 163, 165 Darwin, Charles 132–3 Das Kapital (Marx) 225 Davidson, Richard 49 Davos World Economic Forum 46 Dawkins, Richard 134–5 de Mandeville, Bernard 131–2, 157 death, denial of 69, 104, 115, 212–15 debt, public-sector 81; deflationary forces 44; economic stability 81; financial crisis 24, 26–32, 27, 37, 41, 42, 81; financial systems 28–32, 153–7; money creation 178–9; post-growth economy 178–9, 223 Debt: The First Five Thousand Years (Graeber) 28 decoupling xix, xx, xxxvii, 21, 84–7; dilemma of growth 211; efficiency measures 84, 86, 87, 88, 95, 104; green growth 163, 163–5; historical perspectives 87–96, 89, 90, 92, 94, 95; need for new economic model 101–2; relationship between relative and absolute 96–101 deep emission and resource cuts 99, 102 deficit spending 41, 43 deflationary forces, post-financial crisis 43–7, 45 degrowth movement 161–3, 177 demand 104, 113–16, 166–7; post-financial crisis 44–5; post-growth economy 162, 164, 166–9, 171–2, 174–5 dematerialisation 102, 143 democratisation, and wellbeing 59 deposit guarantees 35 deregulation 27, 34, 36, 196 desire, role in consumer behaviour 68, 69, 70, 114 destructive materialism 104, 112, 113, 116–17 Deutsche Bank 41 devaluation of currency 30, 45 Dichter, Ernest 114 digital economy 44, 219–20 dilemma of growth xxxi, 66–7, 104, 210; basic entitlements 72–9, 74, 75, 76, 78; decoupling 85, 87, 164; degrowth movement 160–3; economic stability 79–83, 174–6; material abundance 67–72; moving beyond 165, 166, 183–4; role of the state 198 diminishing marginal utility: alternative hedonism 125, 126; wellbeing 51–2, 57, 60, 73, 75–6, 79 disposable incomes 27, 67, 118 distributed ownership 223 Dittmar, Helga 126 domestic debt see credit dopamine 68 Dordogne, mindfulness community 128 double movement of society 198 Douglas, Mary 70 Douthwaite, Richard 178 downshifting 128 driving analogy, managing change 16–17 durability, consumer goods 113, 204, 220 dynamic systems, managing change 16–17 Eastern Europe 76, 122 Easterlin, Richard 56, 57, 59; paradox 56, 58 eco-villages, Findhorn community 128 ecological investment 101, 166–70, 220 see also investment ecological limits see limits (ecological) ecological (ecosystem) services 152, 169, 223 The Ecology of Money (Douthwaite) 178 economic growth see growth economic models see alternatives; business-as-usual model; financial systems; future visions; mathematical models; post-growth macroeconomics economic output see efficiency; productivity ‘Economic possibilities for our grandchildren’ (Keynes) 145 economic stability 22, 154, 157, 161; financial system weaknesses 34, 35, 36, 180; growth 21, 24, 67, 79–83, 174–6, 210; post-growth economy 161–3, 165, 174–6, 208, 219; role of the state 181–3, 195, 198, 199 economic structures: post-growth economy 227; financial system reforms 224; role of the state 205; selfishness 137 see also business-as-usual model; financial systems ecosystem functioning 62–3 see also limits (ecological) ecosystem services 152, 169, 223 Ecuador xxxi, 6 education: Baumol’s cost disease 171, 172; and income 67, 76, 76; investment in 150–1; role of the state 193 see also basic entitlements efficiency measures 84, 86–8, 95, 104, 109–11, 142–3; energy 41, 109–11; growth 111, 211; investment 109, 151; of scale 104 see also labour productivity; relative decoupling Ehrlich, Paul 13, 96 elasticity of substitution, labour and capital 177–8 electricity grid 41, 151, 156 see also energy Elgin, Duane 127 Ellen MacArthur Foundation 144 emissions see greenhouse gas emissions employee ownership 223 employment intensity vs. carbon dioxide emissions 148 see also labour productivity empty self 116, 117 see also consumerism ends above means 159 energy return on investment (EROI) 12, 169 energy services/systems 142: efficiency 41, 109–11; inputs/intensity 87–8, 151; investment 41, 109–10, 151–2; renewable xxxv, 41, 168–9 engine of growth 145; consumerism 104, 108, 161; services 143, 170–4 see also circular flow of the economy enough is enough see limits enterprise as service 140, 141–4, 158 see also novelty/innovation entitlements see basic entitlements entrepreneur as visionary 112 entrepreneurial state 220 Environmental Assessment Agency, Netherlands 62 environmental quality 12 see also pollution environmentalism 9 EROI (energy return on investment) 12, 169 Essay on the Principle of Population (Malthus) 9–11, 132–3 evolutionary map, human heart 136, 136 evolutionary theory 132–3; common good 193; post-growth economy 226; psychology 133–5; selfishness and altruism 196 exchange values 55, 61 see also gross domestic product existential fear of death 69, 104, 115, 212–15 exponential expansion 1, 11, 20–1, 210 see also growth external debt 32, 42 extinctions/biodiversity loss 17, 47, 62, 101 Eyres, Harry 215 Fable of the Bees (de Mandeville) 131–2 factor inputs 109–10 see also capital; labour; resource use fast food 128 fatalism 186 FCCC (Framework Convention on Climate Change) 92 fear of death, existential 69, 104, 115, 212–15 feedback loops 16–17 financial crisis (2008) 6, 23–5, 32, 77, 103; causes and culpability 25–8; financial system weaknesses 32–7, 108; Keynesianism 37–43, 188; nationalisation of financial sector 188; need for financial reforms 175; role of debt 24, 26–32, 27, 81, 179; role of state 191; slowing of growth 43–7, 45; spending vs. saving behaviour of ordinary people 118–21, 119; types/definitions of capitalism 106; youth unemployment 144–5 financial systems: common pool resources 192; debt-based/role of debt 28–32, 153–7; post-growth economy 179, 208; systemic weaknesses 32–7; and wellbeing 47 see also banking system; business-as-usual model; financial crisis; reform Findhorn community 128 finite limits of planet see limits (ecological) Fisher, Irving 156, 157 fishing rights 22 flourishing see capabilities for flourishing; limits; wellbeing flow states 127 Flynt, Larry 40 food 67 see also basic entitlements Ford, Henry 154 forestry/forests 22, 192 Forrester, Jay 11 fossil fuels 11, 20 see also oil Foucault, Michel 197 fracking 14, 15 Framework Convention on Climate Change (FCCC) 92 France: GDP per capita 58, 75, 76; inequality 206; life-expectancy 74; mindfulness community 128; working hours 145 free market 106: financial crisis 35, 36, 37, 38, 39; ideological controversy/conflict 186–7, 188 freedom/autonomy: vs. common good 193–4; consumer 22, 68–9; language of goods 212; personal choices for improvement 216–18; wellbeing 49, 59, 62 see also individualism Friedman, Benjamin 176 Friedman, Milton 36, 156, 157 frugality 118–20, 127–9, 215–16 fun (more fun with less stuff) 129, 217 future visions 2, 158, 217–21; community banking 155–6; dilemma of growth 211; enterprise as service 140, 141–4, 147–8, 158; entrepreneur as visionary 112; financial crisis as opportunity 25; and growth 165–6; investment 22, 101–2, 140, 149–53, 158, 169, 208; money as social good 140, 153–7, 158; processes of change 185; role of the state 198, 199, 203; timescales for change 16–17; work as participation 140, 144–9, 148, 158 see also alternatives; post-growth macroeconomics; reform Gandhi, Mahatma 127 GDP see gross domestic product gene, selfish 134–5 Genuine Progress Indicator (GPI) 54, 54 geographical community 122–3 Germany xxxi; Federal Ministry of Finance 224–5; inequality 206; relative income effect 58; trade balance 31; work as participation 146 Glass Steagal Act 35 Global Commodity Price Index (1992–2015) 13 global corporations 106–7 global economy 98: culture 70; decoupling 86–8, 91, 93–5, 95, 97, 98, 100; exponential expansion 20–1; inequality 4, 5–6; interconnectedness 91, 227; post-financial crisis slowing of growth 45 Global Research report (HSBC) 41 global warming see climate change Godley, Wynne 179 Goldman Sachs 37 good life 3, 6; moral dimension 63, 104; wellbeing 48, 50 goods see language of goods; material goods; symbolic role of goods Gordon, Robert 44 governance 22, 185–6; commons 190–2; crisis of commitment 192–5, 197; economic stability 34, 35; establishing limits 200–8, 206; growth 195–9; ideological controversy/conflict 186–9; moving towards change 197–200, 220–1; post-growth economy 181–3, 182; power of corporations 106; for prosperity 209; signals 130 government as household metaphor 30, 42 governmentality 197, 198 GPI (Genuine Progress Indicator) 54, 54 Graeber, David 28 Gramm-Leach-Bliley Act 35 Great Depression 39–40 Greece: austerity xxxiii–xxxiv, xxxvii, 43; energy inputs 88; financial crisis 28, 30, 31, 77; life expectancy 74; schooling 76; relative income effect 58; youth unemployment 144 Green Economy initiative 41 green: growth xxxvii, 18, 85, 153, 166, 170; investment 41 Green New Deal, UNEP 40–1, 152, 188 greenhouse gas emissions 18, 85, 86, 91, 92; absolute decoupling 89–92, 90, 92, 98–101, 100; dilemma of growth 210–11; vs. employment intensity 148; future visions 142, 151, 201–2, 220; Kyoto Protocol 18, 90; reduction targets 19–20; relative decoupling 87, 88, 89, 93, 98–101, 100 see also climate change Greenspan, Alan 35 gross domestic product (GDP) per capita 3–5, 15, 54; climate change 18; decoupling 85, 93, 94; financial crisis 27, 28, 32; green growth 163–5; life expectancy 74, 75, 78; as measure of prosperity 3–4, 5, 53–5, 54, 60–1; post-financial crisis 43, 44; post-growth economy 207; schooling 76; wellbeing 55–61, 58 see also income growth xxxvii; capitalism 105; credit 36, 178–80; decoupling 85, 96–101; economic stability 21, 24, 67, 80, 210; financial crisis 37, 38; future visions 209, 223, 224; inequality 177; labour productivity 111; moving beyond 165, 166; novelty 112; ownership 105; post-financial crisis slowing 43–7, 45; prosperity as 3–7, 23, 66; role of the state 195–9; sustainable investment 166–70; wellbeing 59–60; as zero sum game 57 see also dilemma of growth; engine of growth; green growth; limits to growth; post-growth macroeconomy growth imperative hypothesis 37, 174, 175, 177–80, 183 habit formation, acquisition as 68 Hall, Peter 106, 188 Hamilton, William 134 Hansen, James 17 happiness see wellbeing/happiness Happiness (Layard) 55 Hardin, Garrett 190–1 Harvey, David 189, 192 Hayek, Friedrich 187, 189, 191 health: Baumol’s cost disease 171, 172; inequality 72–3, 205–6, 206; investment 150–1; and material abundance 67, 68; personal choices for improvement 217; response to economic hardship 80; role of the state 193 see also basic entitlements Heath, Edward 66, 82 hedonism 120, 137, 196; alternatives 125–6 Hirsch, Fred xxxii–xxxiii historical perspectives: absolute decoupling 86, 89–96, 90, 92, 94, 95; relative decoupling 86, 87–9, 89 Holdren, John 96 holistic solutions, post-growth economy 175 household finances: house purchases 28–9; spending vs. saving behaviour 118–20, 119 see also credit household metaphor, government as 30, 42 HSBC Global Research report 41 human capabilities see capabilities for flourishing human happiness see wellbeing/happiness human nature/psyche 3, 132–5, 138; acquisition 68; alternative hedonism 125; evolutionary map of human heart 136, 136; intrinsic values 131; meaning/purpose 49–50; novelty/innovation 116; selfishness vs. altruism 133–8; short-termism/living for today 194; spending vs. saving behaviour 34, 118–21, 119; symbolic role of goods 69 see also intrinsic values human rights see basic entitlements humanitarian perspectives: financial crisis 24; growth 79; inequality 5, 52, 53 see also intrinsic values hyperbolic discounting 194 hyperindividualism 226 see also individualism hyper-materialisation 140, 157 I Ching (Chinese Book of Changes) 7 Iceland: financial crisis 28; life expectancy 74, 75; relative income effect 56; response to economic hardship 79–80; schooling 76; sovereign money system 157 identity construction 52, 69, 115, 116, 212, 219 IEA (International Energy Agency) 14, 152 IMF (International Monetary Fund) 45, 156–7 immaterial goods 139–40 see also intrinsic values; meaning/purpose immortality, symbolic role of goods 69, 104, 115, 212–14 inclusive growth see inequality; smart growth income 3, 4, 5, 66, 124; basic entitlements 72–9, 74, 75, 76, 78; child mortality 74–5, 75; decoupling 96; economic stability 82; education 76; life expectancy 72, 73, 74, 77–9, 78; poor nations 67; relative income effect 55–61, 58, 71, 72; tax revenues 81 see also gross domestic product INDCs (intended nationally determined commitments) 19 India: decoupling 99; growth 99; life expectancy 74, 75; philosophy 127; pursuit of western lifestyles 70; savings 27; schooling 76 indicators of environmental quality 96 see also biodiversity; greenhouse gas emissions; pollution; resource use individualism 136, 226; progressive state 194–7, 199, 200, 203, 207 see also freedom/autonomy industrial development 12 see also technological advances inequality 22, 67; basic entitlements 72; child mortality 75, 75; credible alternatives 219, 224; deflationary forces 44; fatalism 186; financial crisis 24; global 4, 5–6, 99, 100; financial system weaknesses 32–3; post-growth economy 174, 176–8; role of the state 198, 205–7, 206; selfishness vs. altruism 137; symbolic role of goods 71; wellbeing 47, 104 see also poverty infant mortality rates 72, 75 inflation 26, 30, 110, 157, 167 infrastructure, civic 150–1 Inglehart, Ronald 58, 59 innovation see novelty/innovation; technological advances inputs 80–1 see also capital; labour productivity; resource use Inside Job documentary film 26 instant gratification 50, 61 instinctive acquisition 68 Institute for Fiscal Studies 81 Institute for Local Self-Reliance 204 institutional structures 130 see also economic structures; governance intended nationally determined commitments (INDCs) 19 intensity factor, technological 96, 97 see also technological advances intentional communities 127–9 interconnectedness, global 91, 227 interest payments/rates 39, 43, 110; financial crisis 29, 30, 33, 39; post-growth economy 178–80 see also credit; debt Intergovernmental Panel on Climate Change (IPCC) 18, 19, 201–2 International Energy Agency (IEA) 14, 152 International Monetary Fund (IMF) 45, 156–7 intrinsic values 126–31, 135–6, 212; role of the state 199, 200 see also belonging; community; meaning/purpose; simplicity/frugality investment 107–10, 108; ecological/sustainable 101, 152, 153, 166–70, 220; and innovation 112; loans 29; future visions 22, 101–2, 140, 149–53, 158, 169, 208, 220; and savings 108; social 155, 156, 189, 193, 208, 220–3 invisible hand metaphor 132, 133, 187 IPAT equation, relative and absolute decoupling 96 IPCC (Intergovernmental Panel on Climate Change) 18, 19, 201–2 Ireland 28; inequality 206; life expectancy 74, 75; schooling 76; wellbeing 58 iron cage of consumerism see consumerism iron ore 94 James, Oliver 205 James, William 68 Japan: equality 206; financial crisis 27, 45; life expectancy 74, 76, 79; relative income effect 56, 58; resource use 93; response to economic hardship 79–80 Jefferson, Thomas 185 Jobs, Steve 210 Johnson, Boris 120–1 Kahneman, Daniel 60 Kasser, Tim 126 keeping up with the Joneses 115, 116, 117 see also relative income effect Kennedy, Robert 48, 53 Keynes, John Maynard/Keynesianism 23, 34, 120, 174, 181–3, 187–8; financial crisis 37–43; financial system reforms 157; part-time working 145; steady state economy 159, 162 King, Alexander 11 Krugman, Paul 39, 85, 86, 102 Kyoto Protocol (1992) 18, 90 labour: child 62, 154; costs 110; division of 158; elasticity of substitution 177, 178; intensity 109, 148, 208; mobility 123; production inputs 80, 109; structures of capitalism 107 labour productivity 80–1, 109–11; Baumol’s cost disease 170–2; and economic growth 111; future visions 220, 224; investment as commitment 150; need for investment 109; post-growth economy 175, 208; services as engine of growth 170; sustainable investment 166, 170; trade off with resource use 110; work-sharing 145, 146, 147, 148, 148, 149 Lahr, Christin 224–5 laissez-faire capitalism 187, 195, 196 see also free market Lakoff, George 30 language of goods 212; material footprint of 139–40; signalling of social status 71; and wellbeing 124 see also consumerism; material goods; symbolic role of goods Layard, Richard 55 leadership, political 199 see also governance Lebow, Victor 120 Lehman Brothers, bankruptcy 23, 25, 26, 118 leisure economy 204 liberal market economies 106, 107; financial crisis 27, 35–6 life expectancy: and income 72, 73, 74, 77–9, 78; inequality 206; response to economic hardship 80 see also basic entitlements life-satisfaction 73; inequality 205; relative income effect 55–61, 58 see also wellbeing/happiness limits, ecological 3, 4, 7, 11, 12, 20–2; climate change 17–20; decoupling 86; financial crisis 23–4; growth 21, 165, 210; post-growth economy 201–2, 226–7; role of the state 198, 200–2, 206–7; and social boundaries 141; wellbeing 62–63, 185 limits, flourishing within 61–5, 185; alternative hedonism 125–6; intrinsic values 127–31; moving towards 215, 218, 219, 221; paradox of materialism 121–23; prosperity 67–72, 113, 212; role of the state 201–2, 205; selfishness 131–8; shame 123–4; spending vs. saving behaviour 118–21, 119 see also sustainable prosperity limits to growth: confronting 7–8; exceeding 20–2; wellbeing 62–3 Limits to Growth report (Club of Rome) xxxii, xxxiii, 8, 11–16 ‘The Living Standard’ essay (Sen) 50, 123–4 living standards 82 see also prosperity Lloyd, William Forster 190 loans 154; community investment 155–6; financial system weaknesses 34 see also credit; debt London School of Economics 25 loneliness 123, 137 see also alienation long-term: investments 222; social good 219 long-term wellbeing vs. short-term pleasures 194, 197 longevity see life expectancy love 212 see also intrinsic values low-carbon transition 19, 220 LowGrow model for the Canadian economy 175 MacArthur Foundation 144 McCracken, Grant 115 Malthus, Thomas Robert 9–11, 132–3, 190 market economies: coordinated 27, 106; liberal 27, 35–6, 106, 107 market liberalism 106, 107; financial crisis 27, 35–6; wellbeing 47 marketing 140, 203–4 Marmot review, health inequality in the UK 72 Marx, Karl/Marxism 9, 189, 192, 225 Massachusetts Institute of Technology (MIT) 11, 12, 15 material abundance see opulence material goods 68–9; identity 52; language of 139–40; and wellbeing 47, 48, 49, 51, 65, 126 see also symbolic role of goods material inputs see resource use materialism: and fear of death 69, 104, 115, 212–15; and intrinsic values 127–31; paradox of 121–3; price of 126; and religion 115; values 126, 135–6 see also consumerism mathematical models/simulations 132; austerity policies 181; countercyclical spending 181–2, 182; decoupling 84, 91, 96–101; inequality 176–8; post-growth economy 164; stock-flow consistent 179–80 Mawdsley, Emma 70 Mazzucato, Mariana 193, 220 MDG (Millennium Development Goals) 74–5 Meadows, Dennis and Donella 11, 12, 15, 16 meaning/purpose 2, 8, 22; beyond material goods 212–16; consumerism 69, 203, 215; intrinsic values 127–31; moving towards 218–20; wellbeing 49, 52, 60, 121–2; work 144, 146 see also intrinsic values means and ends 159 mental health: inequality 206; meaning/purpose 213 metaphors: government as household 30, 42; invisible hand 132, 133, 187 Middle East, energy inputs 88 Miliband, Ed 199 Mill, John Stuart 125, 159, 160, 174 Millennium Development Goals (MDG) 74–5 mindfulness 128 Minsky, Hyman 34, 35, 40, 182, 208 MIT (Massachusetts Institute of Technology) 11, 12, 15 mixed economies 106 mobility of labour, loneliness index 123 Monbiot, George 84, 85, 86, 91 money: creation 154, 157, 178–9; and prosperity 5; as social good 140, 153–7, 158 see also financial systems monopoly power, corporations 106–7 The Moral Consequences of Economic Growth (Friedman) 82, 176 moral dimensions, good life 63 see also intrinsic values moral hazards, separation of risk from reward 35 ‘more fun with less stuff’ 129, 217 mortality fears 69, 104, 115, 212–15 mortality rates, and income 74, 74–6, 75 mortgage loans 28–9, 35 multinational corporations 106–7 national debt see debt, public-sector nationalisation 191; financial crisis 38, 188 natural selection 132–3 see also struggle for existence nature, rights of 6–7 negative emissions 98–9 negative feedback loops 16–17 Netherlands 58, 62, 206, 207 neuroscientific perspectives: flourishing 68, 69; human behaviour 134 New Climate Economy report Better Growth, Better Climate 18 New Deal, USA 39 New Economics Foundation 175 nickel, commodity prices 13 9/11 terrorist attacks (2001) 121 Nordhaus, William 171, 172–3 North America 128, 155 see also Canada; United States Norway: advertising 204; inequality 206; investment as commitment 151–2; life expectancy 74; relative income effect 58; schooling 76 novelty/innovation 104, 108, 113; and anxiety 116–17, 124, 211; crisis of commitment 195; dilemma of growth 211; human psyche 135–6, 136, 137; investment 150, 166, 168; post-growth economy 226; role of the state 196, 197, 199; as service 140, 141–4, 158; symbolic role of goods 114–16, 213 see also technological advances Nudge: Improving Decisions about Health, Wealth, and Happiness (Thaler and Sunstein) 194–5 Nussbaum, Martha 64 nutrient loading, critical boundaries 17 nutrition 67 see also basic entitlements obesity 72, 78, 206 obsolescence, built in 113, 204, 220 oceans: acidification 17; common pool resources 192 Offer, Avner 57, 61, 71, 194, 195 oil prices 14, 21; decoupling 88; financial crisis 26; resource constraints 15 oligarchic capitalism 106, 107 opulence 50–1, 52, 67–72 original sin 9, 131 Ostrom, Elinor and Vincent 190, 191 output see efficiency; gross domestic product; productivity ownership: and expansion 105; private vs. public 9, 105, 191, 219, 223; new models 223–4; types/definitions of capitalism 105–7 Oxfam 141 paradoxes: materialism 121–3; thrift 120 Paris Agreement 19, 101, 201 participation in society 61, 114, 122, 129, 137; future visions 200, 205, 218, 219, 225; work as 140–9, 148, 157, 158 see also social inclusion part-time working 145, 146, 149, 175 Peccei, Aurelio 11 Perez, Carlota 112 performing arts, Baumol’s cost disease 171–2 personal choice 216–18 see also freedom/autonomy personal property 189, 191 Pickett, Kate 71, 205–6 Piketty, Thomas 33, 176, 177 planetary boundaries see limits (ecological) planning for change 17 pleasure 60–1 see also wellbeing/happiness Plum Village mindfulness community 128 Polanyi, Karl 198 policy see governance political leadership 199 see also governance Political Economy Research Institute, University of Massachusetts 41 pollution 12, 21, 53, 95–6, 143 polycentric governance 191, 192 Poor Laws 10 poor nations see poverty population increase 3, 12, 63, 96, 97, 190; Malthus on 9–11, 132–3 porn industry 40 Portugal 28, 58, 88, 206 positional competition 55–61, 58, 71, 72 see also social comparison positive feedback loops 16–17 post-growth capitalism 224 post-growth macroeconomics 159–60, 183–4, 221; credit 178–80; degrowth movement 161–3; economic stability 174–6; green growth 163–5; inequality 176–8; role of state 181–3, 182, 200–8, 206; services 170–4; sustainable investment 166–70 see also alternatives; future visions; reform poverty 4, 5–6, 216; basic entitlements 72; flourishing within limits 212; life expectancy 74, 74; need for new economic model 101; symbolic role of goods 70; wellbeing 48, 59–60, 61, 67 see also inequality; relative income effect power politics 200 predator–prey analogy 103–4, 117 private credit see credit private vs. public: common good 208; ownership 9, 105, 191, 219, 223; salaries 130 privatisation 191, 219 product lifetimes, obsolescence 113, 204, 220 production: inputs 80–1; ownership 191, 219, 223 productivity: investment 109, 167, 168, 169; post-growth economy 224; services as engine of growth 171, 172, 173; targets 147; trap 175 see also efficiency measures; labour productivity; resource productivity profits: definitions of capitalism 105; dilemma of growth 211; efficiency measures 87; investment 109; motive 104; post-growth economy 224; and wages 175–8 progress 2, 50–5, 54 see also novelty/innovation; technological advances progressive sector, Baumol’s cost disease 171 progressive state 185, 220–2; contested 186–9; countering consumerism 202–5; equality measures 205–7, 206; governance of the commons 190–2; governance as commitment device 192–5; governmentality of growth 195–7; limit-setting 201–2; moving towards 197–200; post-growth macroeconomics 207–8, 224; prosperity 209 prosocial behaviour 198 see also social contract prosperity 1–3, 22, 121; capabilities for flourishing 61–5; and growth 3–7, 23, 66, 80, 160; and income 3–4, 5, 66–7; limits of 67–72, 113, 212; materialistic vision 137; progress measures 50–5, 54; relative income effect 55–61, 58, 71, 72; social perspectives 2, 22, 48–9; state roles 209 see also capabilities for flourishing; post-growth macroeconomics; sustainable prosperity; wellbeing prudence, financial 120, 195, 221; financial crisis 33, 34, 35 public sector spending: austerity policies 189; countercyclical spending strategy 181–2, 182; welfare economy 169 public services/amenities: common pool resources 190–2, 198, 199; future visions 204, 218–20; investment 155–6, 204; ownership 223 see also private vs. public; service-based economies public transport 41, 129, 193, 217 purpose see meaning/purpose Putnam, Robert 122 psyche, human see human nature/psyche quality, environmental 12 see also pollution quality of life: enterprise as service 142; inequality 206; sustainable 128 quality to throughput ratios 113 quantitative easing 43 Queen Elizabeth II 25, 32, 34, 37 quiet revolution 127–31 Raworth, Kate 141 Reagan, Ronald 8 rebound phenomenon 111 recession 23–4, 28, 81, 161–3 see also financial crisis recreation/leisure industries 143 recycling 129 redistribution of wealth 52 see also inequality reforms 182–3, 222; economic structures 224; and financial crisis 103; financial systems 156–8, 180 see also alternatives; future visions; post-growth economy relative decoupling 84–5, 86; historical perspectives 87–9, 89; relationship with absolute decoupling 96–101, 111 relative income effect 55–61, 58, 71, 72 see also social comparison religious perspectives 9–10, 214–15; materialism as alternative to religion 115; original sin 9, 131; wellbeing 48, 49 see also existential fear of death renewable energy xxxv, 41, 168–169 repair/renovation 172, 220 resource constraints 3, 7, 8, 11–15, 47 resource productivity 110, 151, 168, 169, 220 resource use: conflicts 22; credible alternatives 101, 220; decoupling 84–9, 92–5, 94, 95; and economic output 142–4; investment 151, 153, 168, 169; trade off with labour costs 110 retail therapy 115 see also consumerism; shopping revenues, state 222–3 see also taxation revolution 186 see also social stability rights: environment/nature 6–7; human see basic entitlements risk, financial 24, 25, 33, 35 The Road to Serfdom (Hayek) 187 Robinson, Edward 132 Robinson, Joan 159 Rockström, Johan 17, 165 romantic movement 9–10 Roosevelt, Franklin D. 35, 39 Rousseau, Jean Jacques 9, 131 Russia 74, 76, 77–80, 78, 122 sacred canopy 214, 215 salaries: private vs. public sector 130, 171; and profits 175–8 Sandel, Michael 150, 164, 218 São Paulo, Clean City Law 204 Sardar, Zia 49, 50 Sarkozy, Nicolas xxxi, 53 savage state, romantic movement 9–10 savings 26–7, 28, 107–9, 108; investment 149; ratios 34, 118–20, 119 scale, efficiencies of 104 Scandinavia 27, 122, 204 scarcity, managing change 16–17 Schumpeter, Joseph 112 Schwartz, Shalom 135–6, 136 schooling see education The Science of Desire (Dichter) 114 secular stagnation 43–7, 45, 173 securitisation, mortgage loans 35 security: moving towards 219; and wellbeing 48, 61 self-development 204 self-expression see identity construction self-transcending behaviours see transcendence The Selfish Gene (Dawkins) 134–5 selfishness 133–8, 196 Sen, Amartya 50, 52, 61–2, 123–4 service concept/servicization 140–4, 147–8, 148, 158 service-based economies 219; engine of growth 170–4; substitution between labour and capital 178; sustainable investment 169–70 see also public services SFC (stock-flow consistent) economic models 179–80 shame 123–4 shared endeavours, post-growth economy 227 Sheldon, Solomon 214 shelter see basic entitlements shopping 115, 116, 130 see also consumerism short-termism/living for today 194, 197, 200 signals: sent out by society 130, 193, 198, 203, 207; social status 71 see also language of goods Simon, Julian 13 simplicity/simple life 118–20, 127–9, 215–16 simulations see mathematical models/simulations slow: capital 170; movement 128 smart growth 85, 163–5 see also green growth Smith, Adam 51, 106–7, 123, 132, 187 social assets 220 social boundaries (minimum standards) 141 see also basic entitlements social care 150–1 see also caring professions social comparison 115, 116, 117 see also relative income effect social contract 194, 198, 199, 200 social inclusion 48, 69–71, 114, 212 see also participation in society social investment 155, 156, 189, 193, 208, 220–3 social justice 198 see also inequality social logic of consumerism 114–16, 204 social stability 24, 26, 80, 145, 186, 196, 205 see also alienation social status see status social structures 80, 129, 130, 137, 196, 200, 203 social tolerance, and wellbeing 59, 60 social unrest see social stability social wage 40 social welfare: financial reforms 182–3; public sector spending 169 socialism 223 Sociobiology (Wilson) 134 soil integrity 220 Solon, quotation 47, 49, 71 Soper, Kate 125–6 Soros, George 36 Soskice, David 106 Soviet Union, former 74, 76, 77–80, 78, 122 Spain 28, 58, 144, 206 SPEAR organization, responsible investment 155 species loss/extinctions 17, 47, 62, 101 speculation 93, 99, 149, 150, 154, 158, 170; economic stability 180; financial crisis 26, 33, 35; short-term profiteering 150; spending: behaviour of ordinary people 34, 119, 120–1; countercyclical 181–2, 182, 188; economic stability 81; as way out of recession 41, 44, 119, 120–1; and work cycle 125 The Spirit Level (Wilkinson and Pickett) 71, 205–6 spiritual perspectives 117, 127, 128, 214 stability see economic stability; social stability stagflation 26 stagnant sector, Baumol’s cost disease 171 stagnation: economic stability 81–2; labour productivity 145; post-financial crisis 43–7, 45 see also recession state capitalism, types/definitions of capitalism 106 state revenues, from social investment 222–3 see also taxation state roles see governance status 207, 209, 211; and possessions 69, 71, 114, 115, 117 see also language of goods; symbolic role of goods Steady State Economics (Daly) xxxii steady state economies 82, 159, 160, 174, 180 see also post-growth macroeconomics Stern, Nicholas 17–18 stewardship: role of the state 200; sustainable investment 168 Stiglitz, Joseph 53 stock-flow consistent (SFC) economic models 179–80 Stockholm Resilience Centre 17, 201 stranded assets 167–8 see also ownership structures of capitalism see economic structures struggle for existence 8–11, 125, 132–3 Stuckler, David 43 stuff see language of goods; material goods; symbolic role of goods subjective wellbeing (SWB) 49, 58, 58–9, 71, 122, 129 see also wellbeing/happiness subprime lending 26 substitution, between labour and capital 177–178 suffering, struggle for existence 10 suicide 43, 52, 77 Sukdhev, Pavan 41 sulphur dioxide pollution 95–6 Summers, Larry 36 Sunstein, Cass 194 sustainability xxv–xxvi, 102, 104, 126; financial systems 154–5; innovation 226; investment 101, 152, 153, 166–70, 220; resource constraints 12; role of the state 198, 203, 207 see also sustainable prosperity Sustainable Development Strategy, UK 198 sustainable growth see green growth sustainable prosperity 210–12; creating credible alternatives 219–21; finding meaning beyond material commodities 212–16; implications for capitalism 222–5; personal choices for improvement 216–18; and utopianism 225–7 see also limits (flourishing within) SWB see subjective wellbeing; wellbeing/happiness Switzerland 11, 46, 157; citizen’s income 207; income relative to wellbeing 58; inequality 206; life expectancy 74, 75 symbolic role of goods 69, 70–1; existential fear of death 212–16; governance 203; innovation/novelty 114–16; material footprints 139–40; paradox of materialism 121–2 see also language of goods; material goods system dynamics model 11–12, 15 tar sands/oil shales 15 taxation: capital 177; income 81; inequality 206; post-growth economy 222 technological advances 12–13, 15; decoupling 85, 86, 87, 96–8, 100–3, 164–5; dilemma of growth 211; economic stability 80; population increase 10–11; role of state 193, 220 see also novelty/innovation Teilhard de Chardin, Pierre 8 terror management, and consumption 69, 104, 115, 212–15 terrorist attacks (9/11) 121 Thailand, Buddhist monasteries 128 Thaler, Richard 194 theatre, Baumol’s cost disease 171–2 theology see religious perspectives theory of evolution 132–3 thermodynamics, laws of 112, 164 Thich Nhat Hanh 128 thrift 118–20, 127–9, 215–16 throwaway society 113, 172, 204 timescales for change 16–17 tin, commodity prices 13 Today programme interview xxix, xxviii Totnes, transition movement 128–9 Towards a Green Economy report (UNEP) 152–3 Townsend, Peter 48, 61 trade balance 31 trading standards 204 tradition 135–6, 136, 226 ‘Tragedy of the commons’ (Hardin) 190–1 transcendence 214 see also altruism; meaning/purpose; spiritual perspectives transition movement, Totnes 128–9 Triodos Bank 156, 165 Trumpf (machine-tool makers) Germany 146 trust, loss of see alienation tungsten, commodity prices 13 Turkey 58, 88 Turner, Adair 157 21st Conference of the Parties to the UN Framework Convention on Climate Change (2015) 19 UBS (Swiss bank) 46 Ubuntu, African philosophy 227 unemployment 77; consumer goods 215; degrowth movement 162; financial crisis 24, 40, 41, 43; Great Depression 39–40; and growth 38; labour productivity 80–1; post-growth economy 174, 175, 183, 208, 219; work as participation 144–6 United Kingdom: Green New Deal group 152; greenhouse gas emissions 92; labour productivity 173; resource inputs 93; Sustainable Development Strategy 198 United Nations: Development Programme 6; Environment Programme 18, 152–3; Green Economy initiative 41 United States: credit unions 155–6; debt 27, 31–32; decoupling 88; greenhouse gas emissions 90–1; subprime lending 26; Works Progress Administration 39 universal basic income 221 see also citizen’s income University of Massachusetts, Political Economy Research Institute 41 utilitarianism/utility, wellbeing 50, 52–3, 55, 60 utopianism 8, 38, 125, 179; post-growth economy 225–7 values, materialistic 126, 135–6 see also intrinsic values Veblen, Thorstein 115 Victor, Peter xxxviii, 146, 175, 177, 180 vision of progress see future visions; post-growth economy volatility, commodity prices 14, 21 wages: and profits 175–8; private vs. public sector 130, 171 walking, personal choices for improvement 217 water use 22 Wealth of Nations, An Inquiry into the Nature and Causes (Smith) 123, 132 wealth redistribution 52 see also inequality Weber, Axel 46 welfare policies: financial reforms 182–3; public sector spending 169 welfare of livestock 220 wellbeing/happiness 47–50, 53, 121–2, 124; collective 209; consumer goods 4, 21, 22, 126; growth 6, 165, 211; intrinsic values 126, 129; investment 150; novelty/innovation 117; opulence 50–2, 67–72; personal choices for improvement 217; planetary boundaries 141; relative income effect 55–61, 58, 71, 72; simplicity 129; utilitarianism 50, 52–3, 55, 60 see also capabilities for flourishing western lifestyles 70, 210 White, William 46 Whybrow, Peter 68 Wilhelm, Richard 7 Wilkinson, Richard 71, 205–6 Williams, Tennessee 213 Wilson, Edward 134 wisdom traditions 48, 49, 63, 128, 213–14 work: as participation 140–9, 148, 157, 158; and spend cycle 125; sharing 145, 146, 149, 175 Works Progress Administration, USA 39 World Bank 160 World Values Survey 58 youth unemployment, financial crisis 144–5 zero sum game, growth as 57, 71


pages: 356 words: 116,083

For Profit: A History of Corporations by William Magnuson

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

As a result, if a large number of savers all of a sudden decide they want to reclaim their money, the bank has a problem. It does not have enough reserves on hand to pay them all back. When savers get wind of this, they may become increasingly panicked and rush to the bank in ever greater numbers to withdraw their savings, triggering a liquidity crisis—in other words, a run on the bank. Bank runs have a way of becoming self-fulfilling prophecies. Worry about a bank failing can cause the bank to fail. And what is more, given the first consequence of banking—its intricate interweaving in the broader economy—banking crises have a nasty tendency to ripple outward, bringing panic and crisis everywhere they reach.

By 1893, the Union Pacific had outstanding $11.5 million in collateral trust notes and $5.2 million in maturing sinking fund bonds, two bond types popular with railroads at the time; the first was secured by other bonds or securities, and the second required the corporation to set aside certain profits to redeem them. The Union Pacific had no chance of paying such a massive debt load. And then, in May, the Panic of 1893 struck the final blow. A series of bank runs and commodity crashes led to a drastic reduction in commerce, and railroads, already overstretched by years of building and expansion, faced a reckoning. “Bottom dropped out of west bound transcontinental business,” wrote the Union Pacific’s new president, Silas Clark. In the first six months of 1893, the Union Pacific’s net revenue dropped $800,000 from the previous year, and the decline only accelerated from there.


pages: 823 words: 206,070

The Making of Global Capitalism by Leo Panitch, Sam Gindin

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

It was the difficulty of raising funds on these markets that forced France’s largest bank, BNS Paribas, on August 9, 2007, to suspend payments due on three of its investment funds. By September Northern Rock, the UK’s fifth-largest lender, had gone to the Bank of England for emergency support, leading to a classic bank run. Within days the UK government had guaranteed Northern Rock’s deposits, and the Bank of England announced that it would provide loans to keep the bank going and extend the same support to other banks. Although President Bush declared in a major speech on the crisis at the end of August that “the government has got a role to play—but it’s limited,” the Treasury had by the beginning of that month already switched to full crisis-management mode, with Paulson “in hourly contact with the Fed, other officials in the administration, finance ministries and regulators overseas and people on Wall Street.”32 Meanwhile, the Fed was in contact with the European Central Bank, the Bank of Japan, and the Bank of England about the role they would all play as lenders of last resort.

Available at globalsecuritisation.com. 29 Deborah Solomon, “Questions for Paul O’Neill: Market Leader,” New York Times, March 30, 2008. 30 Ben Bernanke, “GSE Portfolios, Systemic Risk and Affordable Housing,” speech to the Independent Community Bankers of America’s Annual Convention, Honolulu, March 6, 2007. 31 Both quotes are from Gretchen Morgenson, “The Bank Run We Knew So Little About,” New York Times, April 3, 2011. 32 Vikas Bajaj, “Central Banks Intervene to Calm Volatile Markets,” New York Times, August 1, 2007. For the Bush speech, see Gillian Tett, Fool’s Gold, London: Little, Brown, 2009, p. 227. 33 Quoted in Peter Baker, “A Professor and a Banker Bury Old Dogma on Markets,” New York Times, September 20, 2008.

See Ben Bernanke, “Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression,” American Economic Review 73: 3 (June 1983); and Essays on the Great Depression, Princeton: Princeton University Press, 2000. 34 See Bank for International Settlements, “The International Interbank Market: A Descriptive Study,” BIS Papers 8, Monetary and Economic Department, July 1983; and David Gaffen, “The Meaning of LIBOR,” Wall Street Journal, September 7, 2007. 35 The leading borrowers in the months to come were Citibank ($3.5 billion in September), Deutsche Bank ($2.4 billion in November) and Calyon of France ($2 billion in December). See Morgenson, “The Bank Run We Knew So little About”; Jody Shenn, “Bank of China New York Branch Was Second-Largest Fed Borrower in Aug. 2007,” Bloomberg, March 31, 2011; and Bradley Keoun and Craig Torres, “Foreign Banks Tapped Fed’s Secret Lifeline Most at Crisis Peak,” Bloomberg, April 1, 2011. 36 Michael Shedlock, “Banks Worldwide Engage in Global Coordinated Panic,” Seeking Alpha, December 14, 2007.


pages: 179 words: 42,081

DeFi and the Future of Finance by Campbell R. Harvey, Ashwin Ramachandran, Joey Santoro, Vitalik Buterin, Fred Ehrsam

activist fund / activist shareholder / activist investor, bank run, barriers to entry, bitcoin, blockchain, collateralized debt obligation, crowdsourcing, cryptocurrency, David Graeber, Ethereum, ethereum blockchain, fault tolerance, fiat currency, fixed income, Future Shock, initial coin offering, Jane Street, margin call, money: store of value / unit of account / medium of exchange, Network effects, non-fungible token, passive income, peer-to-peer, prediction markets, rent-seeking, RFID, risk tolerance, Robinhood: mobile stock trading app, Satoshi Nakamoto, seigniorage, smart contracts, transaction costs, Vitalik Buterin, yield curve, zero-coupon bond

A noteworthy early example of an algorithmic stablecoin is Basis,11 which had to close due to regulatory hurdles. Current examples of algorithmic stablecoins include Ampleforth (AMPL)12 and Empty Set Dollar (ESD).13 The drawback to non-collateralized stablecoins is that they have a lack of inherent underlying value backing the exchange of their token. In contractions, this can lead to “bank runs,” in which many holders are left with large sums of the token that are no longer worth the peg price. There is still much work to be done – and regulatory hurdles to overcome – in creating a decentralized stablecoin that both scales efficiently and is resistant to collapse in contractions.14 Stablecoins are an important component of DeFi infrastructure because they allow users to benefit from the functionality of the applications without risking unnecessary price volatility.


pages: 478 words: 126,416

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

Affordable Care Act / Obamacare, Alan Greenspan, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, behavioural economics, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Monday: stock market crash in 1987, Black Swan, Bonfire of the Vanities, bonus culture, book value, Bretton Woods, buy and hold, call centre, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, cognitive dissonance, Cornelius Vanderbilt, corporate governance, Credit Default Swap, cross-subsidies, currency risk, dematerialisation, disinformation, disruptive innovation, diversification, diversified portfolio, Edward Lloyd's coffeehouse, Elon Musk, Eugene Fama: efficient market hypothesis, eurozone crisis, financial engineering, financial innovation, financial intermediation, financial thriller, fixed income, Flash crash, forward guidance, Fractional reserve banking, full employment, George Akerlof, German hyperinflation, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Greenspan put, Growth in a Time of Debt, Ida Tarbell, income inequality, index fund, inflation targeting, information asymmetry, intangible asset, interest rate derivative, interest rate swap, invention of the wheel, Irish property bubble, Isaac Newton, it is difficult to get a man to understand something, when his salary depends on his not understanding it, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", Jim Simons, John Meriwether, junk bonds, light touch regulation, London Whale, Long Term Capital Management, loose coupling, low cost airline, M-Pesa, market design, Mary Meeker, megaproject, Michael Milken, millennium bug, mittelstand, Money creation, money market fund, moral hazard, mortgage debt, Myron Scholes, NetJets, new economy, Nick Leeson, Northern Rock, obamacare, Occupy movement, offshore financial centre, oil shock, passive investing, Paul Samuelson, Paul Volcker talking about ATMs, peer-to-peer lending, performance metric, Peter Thiel, Piper Alpha, Ponzi scheme, price mechanism, proprietary trading, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, railway mania, Ralph Waldo Emerson, random walk, reality distortion field, regulatory arbitrage, Renaissance Technologies, rent control, risk free rate, risk tolerance, road to serfdom, Robert Shiller, Ronald Reagan, Schrödinger's Cat, seminal paper, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, sovereign wealth fund, Spread Networks laid a new fibre optics cable between New York and Chicago, Steve Jobs, Steve Wozniak, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Tobin tax, too big to fail, transaction costs, tulip mania, Upton Sinclair, Vanguard fund, vertical integration, Washington Consensus, We are the 99%, Yom Kippur War

The Glass–Steagall Act of 1933 imposed the separation of commercial and investment banking. The House of Morgan was divided into J.P. Morgan, the commercial banking arm, and Morgan Stanley, an investment bank. The Federal Deposit Insurance Corporation (FDIC) would in future insure depositors against losses from bank runs or bank failures. In both Britain and the USA different functions within the financial system were provided by different institutions. Commercial banks operated the payments system and met the short-term lending needs of their customers. Investment banks (then called ‘merchant banks’ in the UK) handled larger transactions involving the issue of securities.

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


pages: 435 words: 127,403

Panderer to Power by Frederick Sheehan

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

Fortunately, this recent period of turbulence in financial markets has occurred at a time when U.S. commercial banks are strongly capitalized, reflecting years of robust profits.”36 Bernanke seemed incapable of learning from his own experience. In August, Countrywide Bank, a part of Angelo Mozilo’s empire, suffered a bank run when depositors fought their way into Countrywide branches. By that time, the Implode-O-Meter Web site listed 126 imploded mortgage companies, including 10 that closed up shop the same week.37 Yet, Bernanke told a group of central bankers and economists in October that he had no way of knowing if there had been a housing bubble.38 33 Frederic S.

In London, he told the Daily Telegraph that “Britain is more exposed than we are [to mortgage defaults]—in the sense that you have a good deal more adjustable-rate mortgages.”17 That would seem to contradict his variable-rate advice in February 2004, when he advised Americans to look overseas, “where adjustable-rate mortgages are far more common.”18 His statement to the Telegraph was on September 17, in the midst of a bank run on Northern Rock, a British bank. He may not have heightened the hysteria sweeping Britain, but he could have kept his mouth shut. 14 Interview with Leslie Stahl, 60 Minutes, September 16, 2007. 15 Jane Wardell, “Greenspan Defends Subprime,” Associated Press, October 2, 2007. 16“World Markets Still Affected by Fear: Greenspan,” Le Figaro, September 23, 2007. 17“UK More Vulnerable than America to the Credit Crunch, Greenspan says,” Daily Te l eg raph (London), September 18, 2007.


Bit by Bit: How P2P Is Freeing the World by Jeffrey Tucker

Affordable Care Act / Obamacare, Airbnb, airport security, altcoin, anti-fragile, bank run, bitcoin, blockchain, business cycle, crowdsourcing, cryptocurrency, disintermediation, distributed ledger, Dogecoin, driverless car, Fractional reserve banking, George Gilder, Google Hangouts, informal economy, invisible hand, Kickstarter, litecoin, Lyft, Money creation, obamacare, Occupy movement, peer-to-peer, peer-to-peer lending, public intellectual, QR code, radical decentralization, ride hailing / ride sharing, Ross Ulbricht, Satoshi Nakamoto, sharing economy, Silicon Valley, Skype, systems thinking, tacit knowledge, TaskRabbit, the payments system, uber lyft

Government likes to control the money because it can depreciate it and thereby have another revenue source besides taxes. It can guarantee its own debts to prevent markets from evaluating them realistically. The banks oblige this wish. In exchange, they are protected from market competition and enjoy protection against bank runs. In essence, the government grants banks the right to counterfeit so long as government can enjoy the first fruits of the printing press. Once you release yourself from the myth that government created money, new possibilities emerge. Menger describes the emergence of money in evolutionary terms.


pages: 493 words: 132,290

Vultures' Picnic: In Pursuit of Petroleum Pigs, Power Pirates, and High-Finance Carnivores by Greg Palast

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", anti-communist, back-to-the-land, bank run, Berlin Wall, Bernie Madoff, British Empire, capital asset pricing model, capital controls, centre right, Chelsea Manning, classic study, clean water, collateralized debt obligation, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, disinformation, Donald Trump, energy security, Exxon Valdez, Glass-Steagall Act, invisible hand, junk bonds, means of production, Myron Scholes, Nelson Mandela, offshore financial centre, Pepto Bismol, random walk, Ronald Reagan, sensible shoes, Seymour Hersh, transfer pricing, uranium enrichment, Washington Consensus, Yogi Berra

They thought of it as a fine way to test their policies against The Market’s expected reaction. Stiglitz thought it sick, bad governance, and a blatant conflict of interest. He pointed that out and got no more than a look one would give a child that doesn’t understand the ways of the adult world. In regard to letting banks run wild worldwide, Stiglitz raised some questions and got more tolerant “you’ll see when you grow up” looks. In 2008, when Barack Obama was elected by a nation in deep economic recession, the President-Elect waited barely a week before picking his economic cabinet: Larry Summers to the new post of Economics Czar and Tim Geithner as Czarina, Secretary of the Treasury.

In Ecuador’s December 2006 election, the IMF and international banks were counting on the owner of the biggest banana plantation in this banana republic to be returned to the presidency. But Correa, which means “The Belt” in Spanish, whipped him. The country’s credit rating, in bad shape, fell apart. Correa grinned. Ecuador’s agreement to pay off the losses of banks run by straight-out crooks had been coerced out of Palacio’s and Correa’s psychotic predecessors. (There are more psycho presidents in history than I can count, from Iran to the USA. But Ecuador’s Abdala Bucaram, removed in 1997, had an official medical diagnosis.) Correa’s presidential campaign anthem was Twisted Sister’s “We’re Not Gonna Take It.”


pages: 545 words: 137,789

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

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

Between 1929 and 1932, more than five thousand banks went out of business, and in early 1933, there was another big wave of failures as depositors in many states rushed to get out their money. The panic was stemmed only when FDR, the new president, declared a bank holiday, during which he introduced a federal system of deposit insurance. Since then, bank runs have been rare. Deposit insurance provides an effective means of dealing with the problem of hidden information, but it creates moral hazard. If a bank gets into serious trouble, the government will make good the deposits of all its customers up to an agreed limit, which was recently raised to $250,000.

The inevitable result, fans of Jimmy Stewart and the 1946 Frank Capra film It’s a Wonderful Life won’t need reminding, is a run on the bank. During early March, rumors about Bear’s financial health began to circulate. Many Bear employees suspected that short sellers were spreading malicious stories to drive down the firm’s stock. The worst thing about bank runs is that they can be self-fulfilling: once the logic of the prisoner’s dilemma takes over, even an economically sound institution can be felled. To this day, Bear’s senior executives insist the firm was in this category. Its mortgage exposures, although considerable, were smaller than those of many of its rivals.


pages: 466 words: 127,728

The Death of Money: The Coming Collapse of the International Monetary System by James Rickards

"World Economic Forum" Davos, Affordable Care Act / Obamacare, Alan Greenspan, Asian financial crisis, asset allocation, Ayatollah Khomeini, bank run, banking crisis, Bear Stearns, Ben Bernanke: helicopter money, bitcoin, Black Monday: stock market crash in 1987, Black Swan, Boeing 747, Bretton Woods, BRICs, business climate, business cycle, buy and hold, capital controls, Carmen Reinhart, central bank independence, centre right, collateralized debt obligation, collective bargaining, complexity theory, computer age, credit crunch, currency peg, David Graeber, debt deflation, Deng Xiaoping, diversification, Dr. Strangelove, Edward Snowden, eurozone crisis, fiat currency, financial engineering, financial innovation, financial intermediation, financial repression, fixed income, Flash crash, floating exchange rates, forward guidance, G4S, George Akerlof, global macro, global reserve currency, global supply chain, Goodhart's law, Growth in a Time of Debt, guns versus butter model, Herman Kahn, high-speed rail, income inequality, inflation targeting, information asymmetry, invisible hand, jitney, John Meriwether, junk bonds, Kenneth Rogoff, labor-force participation, Lao Tzu, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, low interest rates, mandelbrot fractal, margin call, market bubble, market clearing, market design, megaproject, Modern Monetary Theory, Money creation, money market fund, money: store of value / unit of account / medium of exchange, mutually assured destruction, Nixon triggered the end of the Bretton Woods system, obamacare, offshore financial centre, oil shale / tar sands, open economy, operational security, plutocrats, Ponzi scheme, power law, price stability, public intellectual, quantitative easing, RAND corporation, reserve currency, risk-adjusted returns, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Satoshi Nakamoto, Silicon Valley, Silicon Valley startup, Skype, Solyndra, sovereign wealth fund, special drawing rights, Stuxnet, The Market for Lemons, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, too big to fail, trade route, undersea cable, uranium enrichment, Washington Consensus, working-age population, yield curve

A run on the Iranian banking system commenced, as depositors tried to get their rials out to purchase black-market currencies or hard assets to preserve wealth. The government raised interest rates in an effort to stop the run on the banks. The United States had inflicted a currency collapse, hyperinflation, and a bank run and had caused a scarcity of food, gasoline, and consumer goods, through the expedient of cutting Iran out of the global payments system. Iran fought back, even before the escalation of U.S. efforts, by dumping dollars and buying gold to prevent the United States or its allies from freezing its dollar balances.

As long as holders remain in paper contracts, the system is in equilibrium. If holders in large numbers were to demand physical delivery, they could be snowflakes on an unstable mountain of paper gold. When other holders realize that the physical gold will run out before they can redeem their contracts for bullion, the slide can cascade into an avalanche, a de facto bank run, except the banks in this case are the gold warehouses that support the exchanges and ETFs. This is what happened in 1969 as European trading partners of the United States began cashing in dollars for physical gold. President Nixon shut the window on these redemptions in August 1971. If he had not done so, the U.S. gold vaults at Fort Knox would have been stripped bare by the late 1970s.


pages: 515 words: 132,295

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

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, additive manufacturing, Airbnb, Alan Greenspan, algorithmic trading, Alvin Roth, Asian financial crisis, asset allocation, bank run, Basel III, Bear Stearns, behavioural economics, Big Tech, bonus culture, Bretton Woods, British Empire, business cycle, buy and hold, call centre, Capital in the Twenty-First Century by Thomas Piketty, Carl Icahn, Carmen Reinhart, carried interest, centralized clearinghouse, clean water, collateralized debt obligation, commoditize, computerized trading, corporate governance, corporate raider, corporate social responsibility, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, crowdsourcing, data science, David Graeber, deskilling, Detroit bankruptcy, diversification, Double Irish / Dutch Sandwich, electricity market, Emanuel Derman, Eugene Fama: efficient market hypothesis, financial deregulation, financial engineering, financial intermediation, Ford Model T, Frederick Winslow Taylor, George Akerlof, gig economy, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, Greenspan put, guns versus butter model, High speed trading, Home mortgage interest deduction, housing crisis, Howard Rheingold, Hyman Minsky, income inequality, index fund, information asymmetry, interest rate derivative, interest rate swap, Internet of things, invisible hand, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", John Bogle, John Markoff, joint-stock company, joint-stock limited liability company, Kenneth Rogoff, Kickstarter, knowledge economy, labor-force participation, London Whale, Long Term Capital Management, low interest rates, manufacturing employment, market design, Martin Wolf, money market fund, moral hazard, mortgage debt, mortgage tax deduction, new economy, non-tariff barriers, offshore financial centre, oil shock, passive investing, Paul Samuelson, pensions crisis, Ponzi scheme, principal–agent problem, proprietary trading, quantitative easing, quantitative trading / quantitative finance, race to the bottom, Ralph Nader, Rana Plaza, RAND corporation, random walk, rent control, Robert Shiller, Ronald Reagan, Satyajit Das, Savings and loan crisis, scientific management, Second Machine Age, shareholder value, sharing economy, Silicon Valley, Silicon Valley startup, Snapchat, Social Responsibility of Business Is to Increase Its Profits, sovereign wealth fund, Steve Jobs, stock buybacks, subprime mortgage crisis, technology bubble, TED Talk, The Chicago School, the new new thing, The Spirit Level, The Wealth of Nations by Adam Smith, Tim Cook: Apple, Tobin tax, too big to fail, Tragedy of the Commons, trickle-down economics, Tyler Cowen: Great Stagnation, Vanguard fund, vertical integration, zero-sum game

Senator Glass, along with Congressman Henry Steagall, crafted the Glass-Steagall Act to separate commercial and investment banking in the United States. For more than six decades afterward, the law helped to ring-fence commercial lending from risky proprietary trading. Glass-Steagall also created the Federal Deposit Insurance Corporation (FDIC), which insured bank depositors up to $5,000 each, reducing the risk of bank runs and assuring the general public that it would be safe in case of a financial crisis. Finally, the legislation put limits on the amount of interest that banks could offer savers to attract their money. This measure, known as Regulation Q, was designed in part to prevent banks from competing too vigorously with one another for deposits by offering higher and higher interest rates, which might in turn push them into the sort of risky investments that had precipitated Black Tuesday in 1929.

And it worked, at least for a few decades. The period between the Great Depression and the 1960s was one in which banking was held largely in check, providing mostly plain-vanilla services to average people. Think of the 1946 movie It’s a Wonderful Life, in which Jimmy Stewart’s character, George Bailey, stems a bank run with a famous monologue explaining the local building and loan as the glue holding the community together: “The money’s not here. Your money’s in Joe’s house that’s right next to yours. And in the Kennedy house and Mrs. Macklin’s house and a hundred others.” Bankers of the time thought of themselves not as dealmakers but as stewards of individual wealth and lubricators of industry.


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, do well by doing good, Edmond Halley, Edward Lloyd's coffeehouse, experimental subject, failed state, fake news, Fellow of the Royal Society, fiat currency, financial engineering, financial innovation, Fractional reserve banking, income inequality, Isaac Newton, joint-stock company, land bank, 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, tontine

In its partisans’ view, that would be the saving of the nation. Alternatively, as the skeptical Defoe warned, the clever men of Exchange Alley had figured out a way to get rich off of the public interest: they were “ready, as Occasion offers, and Profit presents, to Stock-jobb [buy and sell] the Nation, couzen [trick] the Parliament, ruffle the Bank, run up and run down Stocks, and put the Dice upon the whole Town.” “Stock-jobb the nation.” That was the crux of Defoe’s polemic: schemes like this transformed the national debt—a public necessity—into a form that could be manipulated for private profit. That was, he argued, if not treason itself, then treachery’s nearest cousin: “Is not all that is taken from the Credit of the Publick, on such an Occasion…is not every Step that is taken in Prejudice of the King’s Interest…a plain constructive Treason in the Consequences of it?”

To most Englishmen and -women, the Alley was an exotic, perilous place—and nowhere more so than at Jonathan’s Coffee House, inside those rooms in which, as the ever-skeptical Daniel Defoe would warn, the unwary and the ignorant could fall prey to “some of the great Follies of Life.” * This assumption turns out to be true, except on the rare occasions when it has proved to be very false indeed: episodes like bank runs during the Great Depression that inspired both new regulatory demands and institutional changes, like the creation of deposit insurance, to reduce the risk to the public. CHAPTER FIVE “more paper credit” Nothing remains of Jonathan’s today. Exchange Alley is itself a ghost: a narrow, deserted pedestrian corridor flanked by faceless office buildings from the High Banal epoch in British architecture.


pages: 920 words: 233,102

Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State by Paul Tucker

"Friedman doctrine" OR "shareholder theory", Alan Greenspan, Andrei Shleifer, bank run, banking crisis, barriers to entry, Basel III, battle of ideas, Bear Stearns, Ben Bernanke: helicopter money, Berlin Wall, Bretton Woods, Brexit referendum, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, conceptual framework, corporate governance, diversified portfolio, electricity market, Fall of the Berlin Wall, financial innovation, financial intermediation, financial repression, first-past-the-post, floating exchange rates, forensic accounting, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, George Akerlof, Greenspan put, incomplete markets, inflation targeting, information asymmetry, invisible hand, iterative process, Jean Tirole, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, liberal capitalism, light touch regulation, Long Term Capital Management, low interest rates, means of production, Money creation, money market fund, Mont Pelerin Society, moral hazard, Northern Rock, operational security, Pareto efficiency, Paul Samuelson, price mechanism, price stability, principal–agent problem, profit maximization, public intellectual, quantitative easing, regulatory arbitrage, reserve currency, risk free rate, risk tolerance, risk-adjusted returns, road to serfdom, Robert Bork, Ronald Coase, seigniorage, short selling, Social Responsibility of Business Is to Increase Its Profits, stochastic process, subprime mortgage crisis, tail risk, The Chicago School, The Great Moderation, The Market for Lemons, the payments system, too big to fail, transaction costs, Vilfredo Pareto, Washington Consensus, yield curve, zero-coupon bond, zero-sum game

3 Buchanan, “Constitutionalization of Money,” p. 255. 4 Smith, Rationale of Central Banking; Hayek, Denationalisation of Money; and Dowd, Private Money, which contains a short section entitled “Abolishing the Bank of England,” possibly explaining why Eddie George asked for a summary (Buchanan, “Constitutionalization”). 5 With thanks to Nellie Liang, Brookings Institution and former director for financial stability at the Fed Board, for comments on late drafts of this and the next chapter, which discusses whether a stability regime can meet the Design Precepts. 6 George, “Approach to Macroeconomic Management,” makes clear that the 1990s’ Bank of England leadership felt much more comfortable gaining operational independence after supply-side reforms in the 1980s had made the real economy more flexible, as that reduced the burden on demand management in accommodating shocks to the economy. 7 That story is broadly captured in Diamond and Dybvig, “Bank Runs.” 8 This is how Mervyn King persuaded the UK that quantitative easing was not inherently inflationary: we were addressing a problem of “not enough money” threatening deflation. By contrast, the Fed tends not to highlight the monetary part of quantitative easing (or of monetary policy more generally), which left it exposed to accusations that it risked runaway inflation by creating too much money. 9 Under the Hayek proposal, there would be competition between different standards chosen by the issuing banks themselves.

“Why Central Banks Should Be Financial Supervisors.” Vox Subprime Series, part 3. CEPR Policy Portal, November 30, 2007. ________. “Central Bank Independence: A Path Less Clear.” Bank for International Settlements, 2013. Cecchetti, Stephen G., and Kermit L. Schoenholtz. “Narrow Banking Won’t Stop Bank Runs.” Money, Banking and Financial Markets (blog), April 28, 2014. Cecchetti, Stephen G., and Paul Tucker. “Is There Macro-Prudential Policy without International Cooperation?” In Policy Challenges in a Diverging Global Economy, Proceedings of the Asia Pacific Policy Conference, edited by R. Glick and M.

Dewatripont, Mathias, Ian Jewitt, and Jean Tirole. “The Economics of Career Concerns, Part II: Application to Missions and Accountability of Government Agencies.” Review of Economic Studies 66, no. 1 (1999): 199–217. Dewey, John. The Public and Its Problems. Athens, OH: Swallow Press, 1954. Diamond, Douglas W., and P. H. Dybvig. “Bank Runs, Deposit Insurance, and Liquidity.” Journal of Political Economy 91, no. 3 (1983): 401–19. Dicey, A. V. Introduction to the Study of the Law of the Constitution. London: Macmillan, 1982. Doehler, Marian. “Institutional Choice and Bureaucratic Autonomy in Germany.” West European Politics 25, no. 1 (2002): 101–24.


pages: 1,088 words: 228,743

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

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

Thoughts on the origins of the financial crisis The big picture is that the crisis followed the broad underpricing of risk in several asset classes amid persistently loose financial conditions. Recall Alan Greenspan’s warning during the boom years: “History has not dealt kindly with the aftermath of protracted periods of low risk premia.” A related interpretation is that the crisis was a modern-day bank run, where a bank run is defined as loss of confidence in a given bank, an asset class, or even the whole financial system. There was arguably too much trust and confidence during the preceding years, leading to complacency and excessive risk taking. Modern financial markets rely on liquidity. Once trust and confidence vanished, so did market liquidity in several assets.

In many real-world cases, the investment horizon is uncertain (and the perceived horizon is often positively related to market conditions and investor risk appetite). Banks, central banks, and corporations tend to have a short horizon, while customer deposits, FX reserves, and excess cash tend to be held for long periods. These institutions need to be prepared to satisfy sudden cash demands (such as are caused by a bank run, currency crisis, or various corporate expenses). Endowments, foundations, and sovereign wealth funds are closest to having permanent capital, but the first two have recurring spending needs each year, whereas the sovereign wealth funds of some commodity-rich countries can expect their net inflows to grow for another decade and net outflows to start only in the distant future.


pages: 1,335 words: 336,772

The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance by Ron Chernow

Alan Greenspan, always be closing, bank run, banking crisis, Bear Stearns, Big bang: deregulation of the City of London, Black Monday: stock market crash in 1987, Bolshevik threat, book value, Boycotts of Israel, Bretton Woods, British Empire, buy and hold, California gold rush, capital controls, Carl Icahn, Charles Lindbergh, collective bargaining, Cornelius Vanderbilt, corporate raider, death from overwork, Dutch auction, Etonian, financial deregulation, financial engineering, fixed income, German hyperinflation, Glass-Steagall Act, index arbitrage, interest rate swap, junk bonds, low interest rates, margin call, Michael Milken, military-industrial complex, money market fund, Monroe Doctrine, North Sea oil, oil shale / tar sands, old-boy network, paper trading, plutocrats, Robert Gordon, Ronald Reagan, short selling, stock buybacks, strikebreaker, Suez canal 1869, Suez crisis 1956, the market place, the payments system, too big to fail, transcontinental railway, undersea cable, Yom Kippur War, young professional

The Pecora hearings would lead straight to Glass-Steagall and the dismemberment of the House of Morgan. IN the autumn of 1932, Hoover presided over one last humiliation—a nationwide banking crisis. Three years of deflation had eroded the collateral behind many loans. As banks called them in, the business slump worsened and produced more bank runs and failures. Before 1932, the thousands of bank closings were mostly confined to small rural banks. Then, that October, Nevada’s governor shut the state’s banks. There followed a frightening crescendo of state bank closings—euphemistically called holidays—climaxed by an eight-day closing of Michigan banks in February.

With an end to fixed exchange rates in the early 1970s, foreign-exchange trading became a wild poker game. In November 1973, Morgan president Walter Hines Page warned friends at Franklin National Bank against excessive foreign-exchange gambling and quietly alerted the New York Fed to the problem. In May 1974, Franklin’s foreign-exchange losses led to the first major bank run since the Depression and the biggest bank failure in U.S. history. When Bankhaus Herstatt, West Germany’s biggest private bank, mysteriously failed in June, it saddled Morgan Guaranty with a $13-million loss. That fall, Fortune warned, “The nation’s financial system is facing its gravest crisis since the Bank Holiday of 1933.

When domestic money managers balked, the bank relied more on Japanese and European funds and sent its financial evangelists abroad to preach calm. “We had the Continental Illinois Reassurance Brigade and we fanned out all around the world,” said David Taylor, Continental’s chairman in 1984.11 The bank never fully recuperated from Penn Square, which led to the first global electronic bank run in May 1984. It began with a fugitive rumor floating around Tokyo that an American investment bank was shopping Continental to possible buyers. This triggered the sale of up to $1 billion in Continental CDs in the Far East, spilling over into panicky European selling the next day. The Continental run was like some modernistic fantasy: there were no throngs of hysterical depositors, just cool nightmare flashes on computer screens.


pages: 1,242 words: 317,903

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

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

In the absence of the “Greenspan put,” the vast shadow-banking sector that had grown up on Greenspan’s watch was in danger of imploding. A quarter of a century earlier, the Fed and the Reagan administration had responded to history’s first electronic bank run, on Continental Illinois, by extending its safety net to the bank’s uninsured creditors. On Friday, September 19, 2008, a terrified Bush administration responded to history’s first shadow-bank run in the same way: it extended its safety net to cash parked in money-market funds, even though these had been explicitly excluded from federal deposit insurance. Over the weekend, the new government backstop was expanded even more.

As Continental’s loans proved uncollectible, traders from Asia to Europe began to fear that it might fail; and the day that Regan harrumphed about Volcker, the jitters turned into a full-blown panic. Banks cut credit lines to Continental as quickly as they could; and the clearinghouse of the Chicago Board of Trade, Continental’s neighbor and one of its largest customers, withdrew a $50 million deposit. History’s first electronic bank run had begun. There were no mobs of frenzied customers outside Continental’s doors. There were just numbers flashing on computer screens, heralding disaster.60 On Friday, May 11, the Federal Reserve Bank of Chicago hastily propped up Continental with a loan of $3.6 billion—more even than it had taken to stabilize Mexico.

The FOMC members were being asked to assent to a rescue whose details they had no part in negotiating. But Greenspan sold the Mexico operation forcefully. The crisis presented a textbook case for last-resort lending, he explained—Mexico was temporarily illiquid, not irredeemably insolvent. If the Fed could help the country survive the equivalent of an irrational bank run, the crisis would soon pass. Besides, the Fed’s assistance would be conditional. The Mexicans would have to commit to reforms before they borrowed the Fed’s money.16 His committee more or less appeased, Greenspan returned to the bull sessions with Rubin. The Fed was willing to help Mexico, he reported, but the Mexicans should also help themselves: to persuade investors to keep cash in their country, they should be instructed to raise interest rates.17 But over the next week or so, Greenspan contributed another perspective, too—one that drew inspiration from General Colin Powell, the victor of the Gulf War.


pages: 209 words: 53,236

The Scandal of Money by George Gilder

Affordable Care Act / Obamacare, Alan Greenspan, bank run, behavioural economics, Bernie Sanders, bitcoin, blockchain, borderless world, Bretton Woods, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, Claude Shannon: information theory, Clayton Christensen, cloud computing, corporate governance, cryptocurrency, currency manipulation / currency intervention, currency risk, Daniel Kahneman / Amos Tversky, decentralized internet, Deng Xiaoping, disintermediation, Donald Trump, fiat currency, financial innovation, Fractional reserve banking, full employment, George Gilder, glass ceiling, guns versus butter model, Home mortgage interest deduction, impact investing, index fund, indoor plumbing, industrial robot, inflation targeting, informal economy, Innovator's Dilemma, Internet of things, invisible hand, Isaac Newton, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", Jeff Bezos, John Bogle, John von Neumann, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, Law of Accelerating Returns, low interest rates, Marc Andreessen, Mark Spitznagel, Mark Zuckerberg, Menlo Park, Metcalfe’s law, Money creation, money: store of value / unit of account / medium of exchange, mortgage tax deduction, Nixon triggered the end of the Bretton Woods system, obamacare, OSI model, Paul Samuelson, Peter Thiel, Ponzi scheme, price stability, Productivity paradox, proprietary trading, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, Ray Kurzweil, reality distortion field, reserve currency, road to serfdom, Robert Gordon, Robert Metcalfe, Ronald Reagan, Sand Hill Road, Satoshi Nakamoto, Search for Extraterrestrial Intelligence, secular stagnation, seigniorage, Silicon Valley, Skinner box, smart grid, Solyndra, South China Sea, special drawing rights, The Great Moderation, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Tim Cook: Apple, time value of money, too big to fail, transaction costs, trickle-down economics, Turing machine, winner-take-all economy, yield curve, zero-sum game

It plunged the nation into a “Great Recession” marked by an oppressively skewed distribution of wealth, with an estimated $5 trillion in bonuses for bankers over seven years and unemployment soaring above 10 percent in the face of a shrinking percentage of adults in the workforce.3 Like most financial crises in history, they argue, this one required active governmental interventions, such as extended unemployment benefits and financial stimuli. But an $800 billion stimulus over three years represented less than 2 percent of the economy. As usual when there are widespread bank runs and financial turmoil, the Federal Reserve had to step in as “lender of last resort,” necessarily expanding governmental debts. Needed also was renewed regulation of systemic risks. But our debt levels remained under control compared with those of other countries and in the context of America’s world-leading gross domestic product (GDP).


pages: 200 words: 54,897

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

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

The real issue isn’t the prices he received – which are exactly what he asked for – but rather how the information about his order in a “dark” pool was known to somebody. That is troubling, and worth probing. Dark pools don’t disseminate market data to any of their clients, high-frequency or otherwise. But, as Lewis points out, clients didn’t know “whether the Wall Street bank [running the dark pool] allowed its own proprietary traders to know of the big buy order.” This is absolutely true. Some dark pool operators make no guarantees about their own trading in the dark pool. For those that promise that their bank’s proprietary traders have no special advantages, it’s still blind faith: unlike the public markets, there are few police on this beat.


100 Baggers: Stocks That Return 100-To-1 and How to Find Them by Christopher W Mayer

Alan Greenspan, asset light, bank run, Bear Stearns, Bernie Madoff, book value, business cycle, buy and hold, Carl Icahn, cloud computing, disintermediation, Dissolution of the Soviet Union, dumpster diving, Edward Thorp, Henry Singleton, hindsight bias, housing crisis, index fund, Jeff Bezos, market bubble, Network effects, new economy, oil shock, passive investing, peak oil, Pershing Square Capital Management, shareholder value, Silicon Valley, SimCity, Stanford marshmallow experiment, Steve Jobs, stock buybacks, survivorship bias, Teledyne, The Great Moderation, The Wisdom of Crowds, tontine

We talked about the composition of the index. The highest weight (37 percent) was in consumer discretionary stocks—such as AutoNation, Carnival, Hyatt Hotels or Wendy’s. There is hardly any weight in mining, which ought to tell you something. There are many financial and real estate companies. BOK Financial, for example, is a bank run by George Kaiser in Oklahoma. “That’s one of the best run banks in history,” Matt said. “We’re not talking about a Citi or JP Morgan.” The insurer W. R. Berkley is another great one. “Greenlight RE—run by Einhorn,” Matt added. “That’s a financial, but it’s really David Einhorn’s vehicle.” You can find all the names—a kind of ready-made watch list—by just looking at the fund’s holdings, which it discloses publicly.


pages: 218 words: 62,889

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

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

Morgan would loan Bear Stearns the funds, which J. P. Morgan borrowed from the central bank. The loan was extended for twenty-eight days.34 The next day, Friday, seemed to have started well: the markets did not appear to be fazed over the overnight deal. It would be a few hours later that the storm hit. The bank run escalated, and Bear’s capital reserves depleted quickly. On the evening of Friday the 14th, Hank Paulson, Treasury Secretary, called Bear’s CEO. Paulson threatened to cut the credit line granted the night before if Schwartz did not arrange a takeover by Sunday. Over the weekend several bidders engaged in talks with Bear’s executives, but all eventually dropped out.


pages: 543 words: 157,991

All the Devils Are Here by Bethany McLean

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

Thanks to deposit insurance, the days were long gone when bank customers stood in line to pull their money out of a shaky bank, creating a run on the bank that usually ended in its collapse. But as Gorton and fellow Yale economist Andrew Metrick would later argue in a paper, the repo market created the conditions for the modern version of the bank run. You never saw this kind of bank run in photographs, but it was every bit as devastating. Where were the regulators as this buildup of risk was taking place? They were nowhere to be found. Just as the banking regulators had averted their eyes from the predatory lending on Main Street, so did they now ignore the ferocious accumulation of risk, much of it tied to subprime mortgages, on Wall Street.


pages: 288 words: 64,771

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

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

The main explicit subsidies consist of (1) the Federal Reserve System’s discount window, established in 1913, through which the Fed can act as a “lender of last resort” and supply emergency liquidity to distressed banks; and (2) federal deposit insurance, first instituted in 1933, through which covered depositors are held harmless in the event of a bank failure. Both these policies are justified on the grounds of preventing and containing bank runs—a particularly serious problem in the United States because historical limits on branch banking rendered US banks under-diversified and consequently crisis-prone. Yet even as they reduced the risks of contagion and financial meltdown, these policies simultaneously reduced the risks of high leverage.


pages: 233 words: 66,446

Bitcoin: The Future of Money? by Dominic Frisby

3D printing, Alan Greenspan, altcoin, bank run, banking crisis, banks create money, barriers to entry, bitcoin, Bitcoin Ponzi scheme, blockchain, capital controls, Chelsea Manning, cloud computing, computer age, cryptocurrency, disintermediation, Dogecoin, Ethereum, ethereum blockchain, fiat currency, financial engineering, fixed income, friendly fire, game design, Hacker News, hype cycle, Isaac Newton, John Gilmore, Julian Assange, land value tax, litecoin, low interest rates, M-Pesa, mobile money, Money creation, money: store of value / unit of account / medium of exchange, Occupy movement, Peter Thiel, Ponzi scheme, prediction markets, price stability, printed gun, QR code, quantitative easing, railway mania, Ronald Reagan, Ross Ulbricht, Satoshi Nakamoto, Silicon Valley, Skype, slashdot, smart contracts, Snapchat, Stephen Hawking, Steve Jobs, Ted Nelson, too big to fail, transaction costs, Turing complete, Twitter Arab Spring, Virgin Galactic, Vitalik Buterin, War on Poverty, web application, WikiLeaks

Prologue We have not only saved the world, er, saved the banks… Gordon Brown, former UK Prime Minister In September 2008, crisis gripped the world. Many believed the entire financial system was about to collapse. It was a ‘global financial tsunami’; we were ‘on the brink’ and ‘staring into the abyss’.1 Capitulating stock markets, bankruptcies, bank runs – events came thick and fast and, at first, nobody seemed to know quite what to do. Then, under immense pressure from the world of finance, governments and central banks reacted dramatically. They created money and credit on a scale unprecedented in human history. Banks were bailed out, interest rates were slashed to levels never seen before and the process of creating money electronically known as quantitative easing was begun.


pages: 237 words: 64,411

Humans Need Not Apply: A Guide to Wealth and Work in the Age of Artificial Intelligence by Jerry Kaplan

Affordable Care Act / Obamacare, Amazon Web Services, asset allocation, autonomous vehicles, bank run, bitcoin, Bob Noyce, Brian Krebs, business cycle, buy low sell high, Capital in the Twenty-First Century by Thomas Piketty, combinatorial explosion, computer vision, Computing Machinery and Intelligence, corporate governance, crowdsourcing, driverless car, drop ship, Easter island, en.wikipedia.org, Erik Brynjolfsson, estate planning, Fairchild Semiconductor, Flash crash, Gini coefficient, Goldman Sachs: Vampire Squid, haute couture, hiring and firing, income inequality, index card, industrial robot, information asymmetry, invention of agriculture, Jaron Lanier, Jeff Bezos, job automation, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kiva Systems, Larry Ellison, Loebner Prize, Mark Zuckerberg, mortgage debt, natural language processing, Nick Bostrom, Own Your Own Home, pattern recognition, Satoshi Nakamoto, school choice, Schrödinger's Cat, Second Machine Age, self-driving car, sentiment analysis, short squeeze, Silicon Valley, Silicon Valley startup, Skype, software as a service, The Chicago School, The Future of Employment, Turing test, Vitalik Buterin, Watson beat the top human players on Jeopardy!, winner-take-all economy, women in the workforce, working poor, Works Progress Administration

As momentum built, and other programs automatically executed “stop-loss” orders to sell at any price, the denominator of that percentage grew and grew. But that’s only the start of the story. Safety alarms, responsibly incorporated into HFT programs all over the world, went off. Detecting unusual market fluctuations, some began dutifully unwinding positions at a furious pace to protect their patron’s money. It was a full-on instant electronic bank run. The more aggressive ones, sensing a rare opportunity, smelled blood in the water. Interpreting the frantic buying and selling of their electronic counterparts as prey on the run, they traded furiously on their proprietary algorithms’ predictions that the generous spreads would quickly evaporate.


pages: 257 words: 71,686

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

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

Finding out what the problem is in the first place – “root cause analysis” – that’s nearly always the most time-consuming. Nobody has a complete and in-depth overview.’ He seemed genuinely concerned that one day a megabank would be shut out of its own data. What happens to the companies who rely on that bank’s payment system? ‘It would make the panic during a bank run look innocent.’ He spoke of colleagues who retain paper copies of all their internet banking statements and confirmed with a grin a favourite quote of mine from another IT specialist I’d interviewed: ‘The generation who built the computer systems when automation took off is now reaching retirement age.


pages: 261 words: 64,977

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

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

Under Herbert Hoover, the bailout agency’s doings were enormously unpopular, thanks to episodes that should sound very familiar to us today. In 1932, the RFC went to the rescue of railroads that were essentially fronts for Wall Street interests. (Like AIG!) Then it poured money into a big Chicago bank run by the man who had been not only the RFC’s chairman a few weeks before, but also Calvin Coolidge’s vice president. (Cronyism!) And it did these things while denying funds to cities that had run out of money to pay schoolteachers. (Where’s my bailout?)3 Although it was almost never mentioned in our present-day debates over the legacy of Franklin Roosevelt, those bad bailouts were one of the targets of Roosevelt’s famous “forgotten man” speech of 1932, in which he charged that “the infantry of our economic army” had been overlooked while Hoover dispensed billions to the “big banks, the railroads, and the corporations of the nation.”4 Did FDR’s criticism of the bailouts mean there would be no more of them?


pages: 206 words: 67,388

The River: A Novel by Peter Heller

bank run

Wynn dumped the blueberries out of the pot and yelled at Maia to pull up her hood, she did, and he dipped the pan and doused her with water and then himself and he yelled and tossed the pot to Jack. They needed to get to the bank. It was low along here, it was the shadow of a wall, a cut bank running to three or four feet above the water, running down to water’s edge and rising again like a moldering stone fence. The fire was coming fast and they needed to get against the dirt down low maybe in the water and get their heads in moss or roots, he didn’t know what. As he thought that, he heard another rush beneath the fire: the current was picking up.


pages: 202 words: 66,742

The Payoff by Jeff Connaughton

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

., and the euro zone totaled approximately $11 trillion at the end of 2007. Incredibly, that was almost $5 trillion more than the total value of domestic bank deposits at that time, which was less than $7 trillion. The overreliance on such wholesale financing made the entire financial system vulnerable to a bank run, as during the Great Depression (before we instituted a system of deposit insurance and strong bank supervision). Remarkably, although there is a prudential cap on the amount of deposits the largest banks can hold, nothing limits bank liabilities like repos, which often must be rolled over every day.


pages: 218 words: 68,648

Confessions of a Crypto Millionaire: My Unlikely Escape From Corporate America by Dan Conway

Affordable Care Act / Obamacare, Airbnb, bank run, basic income, Bear Stearns, Big Tech, bitcoin, blockchain, buy and hold, cloud computing, cognitive dissonance, corporate governance, crowdsourcing, cryptocurrency, disruptive innovation, distributed ledger, double entry bookkeeping, Ethereum, ethereum blockchain, fault tolerance, financial independence, gig economy, Gordon Gekko, Haight Ashbury, high net worth, holacracy, imposter syndrome, independent contractor, initial coin offering, job satisfaction, litecoin, Marc Andreessen, Mitch Kapor, obamacare, offshore financial centre, Ponzi scheme, prediction markets, rent control, reserve currency, Ronald Coase, Satoshi Nakamoto, Silicon Valley, Silicon Valley billionaire, smart contracts, Steve Jobs, supercomputer in your pocket, tech billionaire, tech bro, Tragedy of the Commons, Turing complete, Uber for X, universal basic income, upwardly mobile, Vitalik Buterin

Since this ledger isn’t controlled by any one party, it is decentralized. Financial transactions and, theoretically, any type of complex business can be completed on the Bitcoin, Ethereum or other public blockchain ledgers. The big-picture implications of the triple-entry ledger are huge. Today, the world economy is controlled by corporations and banks running centrally controlled double-entry ledgers. The Internet was supposed to be free, but even it has been captured. The FAANG companies (Facebook, Apple, Amazon, Netflix, and Google) have made it a gated community. Blockchain is an opportunity to organize in a different way. It has the potential to weaken the gatekeepers, rule makers, and monopolies through decentralization.


pages: 242 words: 71,943

Strong Towns: A Bottom-Up Revolution to Rebuild American Prosperity by Charles L. Marohn, Jr.

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, A Pattern Language, American Society of Civil Engineers: Report Card, anti-fragile, bank run, big-box store, Black Swan, bread and circuses, Bretton Woods, British Empire, business cycle, call centre, cognitive dissonance, complexity theory, corporate governance, Detroit bankruptcy, Donald Trump, en.wikipedia.org, facts on the ground, Ferguson, Missouri, gentrification, global reserve currency, high-speed rail, housing crisis, index fund, it is difficult to get a man to understand something, when his salary depends on his not understanding it, Jane Jacobs, Jeff Bezos, low interest rates, low skilled workers, mass immigration, megaproject, Modern Monetary Theory, mortgage debt, Network effects, new economy, New Urbanism, paradox of thrift, Paul Samuelson, pensions crisis, Ponzi scheme, quantitative easing, reserve currency, restrictive zoning, Savings and loan crisis, the built environment, The Death and Life of Great American Cities, trickle-down economics, Upton Sinclair, urban planning, urban renewal, walkable city, white flight, women in the workforce, yield curve, zero-sum game

As people withdraw investment, conditions worsen, as conditions worsen, confidence in the housing market – confidence in your neighborhood – drops, which causes further disinvestment, which causes further erosion of confidence. It just keeps cycling. We were basically a community engaged in a bank run on confidence. We have the capacity to revitalize our neighborhoods and communities, but we just don’t have the confidence.1 In my hometown, our poorest neighborhoods are also some of our most financially productive. There is a general sense among some of the more affluent in town that the people in these poor neighborhoods don’t want nice things.


pages: 662 words: 180,546

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

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

In the rush to judgment, anyone who said or wrote anything about some kind of bubble or imbalance or financial instability sometime in the 2000s suddenly sought to be credited as rivaling the Oracle at Delphi, engaging in the most exquisite augury. Some Nobel winners in particular pushed this ploy well beyond the breaking point, eliding prediction proper, and instead suggesting that anyone who had ever produced a mathematical model mentioning bank runs or financial fraud or irrational expectations or debt deflation or (fill in the blank) was proof positive that the economics profession had not been caught unawares.23 It helped if the interlocutor stopped paying attention to what had been taught in the macroeconomics classes across the most highly ranked economics departments.

De Soto, Hernando. “The Destruction of Economic Facts,” Business Week, April 28, 2011. Deuber-Mankowsky, Astrid. “Nothing Is Political, Everything Can Be Politicized: On the Concept of the Political in Michel Foucault and Carl Schmitt,” Telos 142 (2008): 135–61. Diamond, Douglas, and Philip Dybvig. “Bank Runs, Deposit Insurance and Liquidity,” Journal of Political Economy 91 (1983): 401–19. Diamond, Marie. “The Return of Debtor’s Prisons” (2011), at http://thinkprogress.org/justice/2011/12/13/388303/the-return-of-debtors-prisons-thousands-of-americans-jailed-for-not-paying-their-bills/. Diamond, Sara.


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

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

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

In theory, all public investment could be a charge on the state’s capital budget. However, where projects are potentially profitable but, for short-termist or other reasons, unattractive to private investors, there is a good case for outsourcing them to independent or quasi-independent institutions, such as a State Investment Bank, run on commercial lines. The reasons for doing so are partly psychological. 355 A N e w M ac roe c onom ic s Their borrowing would be ‘off budget’ and so avoid the hostility which attaches to any increase in the government deficit.8 Public confidence in the value of their investments will be increased if they are seen to be independent of politics.


pages: 270 words: 73,485

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

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

Northern Rock initially tried to borrow money on the wholesale money market, but found it too expensive. As rumors circulated that Northern Rock was in trouble, depositors queued up to withdraw their money. The UK government had to rush to the rescue and nationalize the bank. Northern Rock was not the only UK bank to experience trouble, but it was the first UK bank to experience a bank run in over a century. The crisis deepened in March 2008 when the 80-year-old American investment bank Bear Stearns also found itself in trouble. It had exposed itself in the securitized mortgage market and as the prices fell, its exposure increased and the Fed could not rescue it. It had assets of $400 billion but a debt of $33 per each dollar of its capital.


pages: 251 words: 76,868

How to Run the World: Charting a Course to the Next Renaissance by Parag Khanna

"World Economic Forum" Davos, Albert Einstein, Asian financial crisis, back-to-the-land, bank run, blood diamond, Bob Geldof, borderless world, BRICs, British Empire, call centre, carbon footprint, carbon tax, charter city, clean tech, clean water, cloud computing, commoditize, congestion pricing, continuation of politics by other means, corporate governance, corporate social responsibility, Deng Xiaoping, Doha Development Round, don't be evil, double entry bookkeeping, energy security, European colonialism, export processing zone, facts on the ground, failed state, financial engineering, friendly fire, global village, Global Witness, Google Earth, high net worth, high-speed rail, index fund, informal economy, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Kickstarter, Kiva Systems, laissez-faire capitalism, Live Aid, Masdar, mass immigration, megacity, Michael Shellenberger, microcredit, military-industrial complex, mutually assured destruction, Naomi Klein, Nelson Mandela, New Urbanism, no-fly zone, off grid, offshore financial centre, oil shock, One Laptop per Child (OLPC), open economy, out of africa, Parag Khanna, private military company, Productivity paradox, race to the bottom, RAND corporation, reserve currency, Salesforce, Silicon Valley, smart grid, South China Sea, sovereign wealth fund, special economic zone, sustainable-tourism, Ted Nordhaus, The Fortune at the Bottom of the Pyramid, The Wisdom of Crowds, too big to fail, trade liberalization, trickle-down economics, UNCLOS, uranium enrichment, Washington Consensus, X Prize

The Philippines, South Africa, and other countries have become the world’s liveliest laboratories for the interplay of remittances, micro-credit, FDI, bilateral donors, and new public-private partnerships—with results tracked and measured on websites such as AidData.org. Stories of success inspire replication and scale. Small models that work are far more useful than failed big ones. In Nepal, the Asian Development Bank runs a performance-based grant system: Local constituencies that spend money wisely get more as a reward. Members of the public are informed about which districts are getting what resources, so they have started to lobby hard for better local governance. This is a good model for better global governance as well.


pages: 268 words: 74,724

Who Needs the Fed?: What Taylor Swift, Uber, and Robots Tell Us About Money, Credit, and Why We Should Abolish America's Central Bank by John Tamny

Airbnb, Alan Greenspan, Apollo 13, bank run, Bear Stearns, Bernie Madoff, bitcoin, Bretton Woods, business logic, buy and hold, Carl Icahn, Carmen Reinhart, corporate raider, correlation does not imply causation, cotton gin, creative destruction, Credit Default Swap, crony capitalism, crowdsourcing, Donald Trump, Downton Abbey, Fairchild Semiconductor, fiat currency, financial innovation, Fractional reserve banking, full employment, George Gilder, Glass-Steagall Act, Home mortgage interest deduction, Jeff Bezos, job automation, Joseph Schumpeter, junk bonds, Kenneth Rogoff, Kickstarter, Larry Ellison, liquidity trap, low interest rates, Mark Zuckerberg, market bubble, Michael Milken, Money creation, money market fund, moral hazard, mortgage tax deduction, NetJets, offshore financial centre, oil shock, peak oil, Peter Thiel, Phillips curve, price stability, profit motive, quantitative easing, race to the bottom, Ronald Reagan, self-driving car, sharing economy, Silicon Valley, Silicon Valley startup, Solyndra, Steve Jobs, The Wealth of Nations by Adam Smith, too big to fail, Travis Kalanick, Uber for X, War on Poverty, yield curve

Notable here is that they wouldn’t use the funds to expand their footprint, acquire talent and/or competitors, or enhance the customer experience; instead the funds raised would be invested in highly liquid, largely risk-free securities (think U.S. Treasuries) so that the money could be accessed amid a “crisis” or “bank run.” Banks would have a “cushion.” The problems with this idea are many, however. For one, the capital raise would dilute existing shareholders owing to the issuance of new shares, all the while doing nothing to enhance the bank itself. Remember, capital would be raised solely as a cushion to be accessed in an emergency when credit is “tight.”


pages: 249 words: 77,342

The Behavioral Investor by Daniel Crosby

affirmative action, Asian financial crisis, asset allocation, availability heuristic, backtesting, bank run, behavioural economics, Black Monday: stock market crash in 1987, Black Swan, book value, 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, Dunning–Kruger effect, endowment effect, equity risk premium, fake news, feminist movement, Flash crash, haute cuisine, hedonic treadmill, housing crisis, IKEA effect, impact investing, impulse control, index fund, Isaac Newton, Japanese asset price bubble, job automation, longitudinal study, loss aversion, market bubble, market fundamentalism, mental accounting, meta-analysis, Milgram experiment, moral panic, Murray Gell-Mann, Nate Silver, neurotypical, Nick Bostrom, passive investing, pattern recognition, Pepsi Challenge, Ponzi scheme, prediction markets, random walk, Reminiscences of a Stock Operator, Richard Feynman, Richard Thaler, risk tolerance, 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, systems thinking, TED Talk, Thales of Miletus, The Signal and the Noise by Nate Silver, Tragedy of the Commons, trolley problem, tulip mania, Vanguard fund, When a measure becomes a target

A study by Kirk, Brown and Downar that matched 34 meditators with 44 matched controls found that those who meditated showed lower neural activations in the caudate nucleus and ventromedial prefrontal cortex during reward anticipation when compared to their less enlightened peers. What does this all mean in plain English? The parts of the brain associated with greed – expecting and anticipating reward – are actually less active in the minds of those who meditate. Fear and greed, responsible for calamitous financial decisions as diverse as bank runs, investment bubbles, and affinity fraud, both show evidence of being tamed by the simple act of mindfulness meditation. Most impressive of all is the growing body of evidence that meditation seems to be able to physically restructure our bodies in certain ways, a reality that almost sounds like science fiction.


pages: 232 words: 76,830

Dreams of Leaving and Remaining by James Meek

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

But not everyone makes a clear distinction between the Brown who managed the Treasury carefully – which he did – and the Brown who did not act to stop the banks pursuing the demented expansion of their balance sheets. Which he also did. When, in 2007, Northern Rock had to be rescued by the Labour government after it suffered the first bank run in Britain since the nineteenth century, it turned out that the bank’s management had bundled together much of its future income stream from people making monthly mortgage repayments and used it as collateral to borrow £49 billion from around the world, with which it created more mortgages. It did this via a so-called charitable trust called Granite, based in the offshore tax haven of Jersey, which used, as its nominal charity, a tiny organisation from the North-East that helps those with Down’s syndrome.


pages: 318 words: 77,223

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

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

To make things worse, each side had difficulties convincing the other of its seriousness. As such, the risk of a Graccident rose considerably, culminating in an economic “sudden stop” in June–July 2015—one in which a total breakdown in negotiations, amplified by acrimonious accusations and bitter personal attacks, led to a bank run that forced the disorderly closure of the banking system. Together with capital controls aimed at keeping whatever euros were left within Greece, the result was a collapse in economic activity, trade, and trust in the system. Even tourism, a key sector for Greece, was disrupted. The already alarming levels of unemployment headed even higher, already strained social safety nets were stretched even more, and poverty deepened and spread.


pages: 322 words: 77,341

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

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

In one form or another, balance sheet abysses of this sort are responsible for all the collapses we’ve seen. Perhaps we can experience a twinge of national pride at the thought that this planetwide problem began with Northern Rock, which in September 2007 experienced the single most dreaded event which can overtake any financial institution, not seen in Britain for more than a century: a bank run. So many people turned up in person to withdraw money that the bank ended up paying out 5 percent of its total assets, a cool £1 billion in cash. Perhaps we can also experience a twinge of nostalgia at the fact that at the time of its nationalization a few months later, the £25 billion Northern Rock bailout was the biggest sum any government anywhere in the world had ever given to a private company.


pages: 289 words: 77,532

The Secret Club That Runs the World: Inside the Fraternity of Commodity Traders by Kate Kelly

"Hurricane Katrina" Superdome, Alan Greenspan, Bakken shale, bank run, Bear Stearns, business cycle, commodity super cycle, Credit Default Swap, diversification, fixed income, Gordon Gekko, index fund, light touch regulation, locking in a profit, London Interbank Offered Rate, Long Term Capital Management, margin call, oil-for-food scandal, paper trading, peak oil, Ponzi scheme, proprietary trading, risk tolerance, Ronald Reagan, side project, Silicon Valley, Sloane Ranger, sovereign wealth fund, supply-chain management, the market place

In the course of a week, the very sorts of events that Andurand and others had feared all summer actually came to pass: a teetering Merrill Lynch was sold to Bank of America in a last-minute deal, and Goldman Sachs and Morgan Stanley rapidly converted into bank holding companies that could borrow from the government in order to assuage investors’ terrors about a future bank run. The century-and-a-half-old investment bank Lehman Brothers filed for Chapter 11 bankruptcy protection. The insurer American International Group, beleaguered by bad investments in subprime mortgages that were now creating windfalls for traders to whom AIG had sold insurance policies to guard against defaults in those very same loans, had to accept a massive government bailout.


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

Alan Greenspan, asset allocation, asset-backed security, bank run, banking crisis, Bear Stearns, Bernie Sanders, Big bang: deregulation of the City of London, buy low sell high, call centre, central bank independence, collapse of Lehman Brothers, corporate governance, credit crunch, Credit Default Swap, eurozone crisis, fear of failure, financial deregulation, financial innovation, fixed income, interest rate derivative, interest rate swap, Kickstarter, light touch regulation, London Interbank Offered Rate, London Whale, low interest rates, mortgage debt, Neil Armstrong, Northern Rock, performance metric, Ponzi scheme, Ronald Reagan, social intelligence, sovereign wealth fund, subprime mortgage crisis, urban sprawl

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


pages: 232 words: 71,965

Dead Companies Walking by Scott Fearon

Alan Greenspan, bank run, Bear Stearns, Bernie Madoff, Black Monday: stock market crash in 1987, book value, business cycle, Carl Icahn, corporate raider, cost per available seat-mile, creative destruction, crony capitalism, Donald Trump, Eugene Fama: efficient market hypothesis, fear of failure, Golden Gate Park, hiring and firing, housing crisis, index fund, it's over 9,000, Jeff Bezos, John Bogle, Joseph Schumpeter, Larry Ellison, late fees, legacy carrier, McMansion, moral hazard, multilevel marketing, new economy, pets.com, Ponzi scheme, Ronald Reagan, short selling, short squeeze, Silicon Valley, Snapchat, South of Market, San Francisco, Steve Jobs, survivorship bias, Upton Sinclair, Vanguard fund, young professional

I’d always heard about the sleazy tricks fund managers use to fleece their investors. But I’d never been on the business end of any of them personally until I signed over that money to my former friend. The first thing that worried me was that he bought a lot of dodgy green energy companies brought public by an investment bank run by a Silicon Valley promoter named Laird Cagan. We’re talking about pure “story” stocks, companies whose only assets were a couple of engineering PhDs and—maybe—a patent or two. To be honest, I was ready to write my investment off when I saw those stocks in the audited financials. But to my pleasant surprise, my friend’s picks actually did pretty well.


Great Continental Railway Journeys by Michael Portillo

Albert Einstein, bank run, Berlin Wall, British Empire, Johann Wolfgang von Goethe, Kickstarter, Louis Blériot, railway mania, Suez canal 1869, trade route

Behind the building initiative which continued throughout the 1850s was mostly French money, although German and English investors later alighted on Spanish railway projects. Two French banks were responsible for creating key railway companies. The Madrid–Zaragoza–Alicante Railway, better remembered as MZA, was financed from 1856 by the French bank run by James de Rothschild. He was already a major player in the French railway company that ran the busy service from Paris to Boulogne-sur-Mer, where ferries were perpetually docked in preparation for cross-Channel voyages to England. The other company, known colloquially as Norte, was financed from 1858 by journalists Isaac (1806–1880) and Émile (1800–1875) Péreire, the founders and operators of the Paris–Orléans Railway.


pages: 286 words: 79,305

99%: Mass Impoverishment and How We Can End It by Mark Thomas

"there is no alternative" (TINA), "World Economic Forum" Davos, 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, additive manufacturing, Alan Greenspan, Albert Einstein, anti-communist, autonomous vehicles, bank run, banks create money, behavioural economics, bitcoin, business cycle, call centre, Cambridge Analytica, central bank independence, circular economy, complexity theory, conceptual framework, creative destruction, credit crunch, CRISPR, declining real wages, distributed ledger, Donald Trump, driverless car, Erik Brynjolfsson, eurozone crisis, fake news, fiat currency, Filter Bubble, full employment, future of work, Gini coefficient, gravity well, income inequality, inflation targeting, Internet of things, invisible hand, ITER tokamak, Jeff Bezos, jimmy wales, job automation, Kickstarter, labour market flexibility, laissez-faire capitalism, Larry Ellison, light touch regulation, Mark Zuckerberg, market clearing, market fundamentalism, Martin Wolf, Modern Monetary Theory, Money creation, money: store of value / unit of account / medium of exchange, Nelson Mandela, Nick Bostrom, North Sea oil, Occupy movement, offshore financial centre, Own Your Own Home, Peter Thiel, Piper Alpha, plutocrats, post-truth, profit maximization, quantitative easing, rent-seeking, Robert Solow, Ronald Reagan, Second Machine Age, self-driving car, Silicon Valley, smart cities, Steve Jobs, The Great Moderation, The Wealth of Nations by Adam Smith, Tyler Cowen, warehouse automation, wealth creators, working-age population

Conventional macro-economic models are not fit for purpose There are many types of macro-economic model in use, ranging in sophistication from complex mathematical models that can be run only by experts through to simple models that ordinary people can carry around in their minds. Probably the three most widely used types of model are General Equilibrium models, econometric models and simple mental models. Like all models, all three are wrong – the question is: which are useful? GENERAL EQUILIBRIUM MODELS Many central banks run models known as Dynamic Stochastic General Equilibrium (DSGE) models. The name alone is off-putting. Let’s take each part in turn. ‘Dynamic’ simply means not static (i.e. that the model operates over an interval of time rather than simply at one specific point in time). ‘Stochastic’ means that the model allows for some factors to have probabilities associated with them rather than specific values (for example, the oil price can have a probability distribution linked with it rather than an assumption that the price will remain fixed during the forecast period).


pages: 303 words: 74,206

GDP: The World’s Most Powerful Formula and Why It Must Now Change by Ehsan Masood

Alan Greenspan, anti-communist, bank run, banking crisis, biodiversity loss, Bob Geldof, Bretton Woods, centre right, clean water, colonial rule, coronavirus, COVID-19, Credit Default Swap, decarbonisation, deindustrialization, Diane Coyle, energy security, European colonialism, financial engineering, government statistician, happiness index / gross national happiness, income inequality, indoor plumbing, Intergovernmental Panel on Climate Change (IPCC), Isaac Newton, job satisfaction, Kickstarter, Mahbub ul Haq, mass immigration, means of production, Meghnad Desai, Mohammed Bouazizi, Robert Solow, Ronald Reagan, Sheryl Sandberg, Silicon Valley, Simon Kuznets, Skype, statistical model, the scientific method, The Spirit Level, Washington Consensus, wealth creators, zoonotic diseases

The third represented GDP in 1999. America’s GDP for 1900 was a lowly $290 billion. Twenty-nine years later it was $730 billion. In 1999, six decades after the great invention, US GDP had leapt to $9.2 trillion. Next to the other two years, that period appeared like a skyscraper on Daley’s slide. “Gone are the bank runs, the financial panics, the deep and drawn out recessions, and the long lines of the unemployed,” Daley said. “Obviously, the GDP accounts are not solely responsible for putting America’s economy on a steadier track—as much as I’d like to make that claim. But no question about it: They have had a very positive effect on America’s economic well-being.”


pages: 307 words: 82,680

A Pelican Introduction: Basic Income by Guy Standing

"World Economic Forum" Davos, anti-fragile, bank run, basic income, behavioural economics, Bernie Sanders, Bertrand Russell: In Praise of Idleness, Black Lives Matter, Black Swan, Boris Johnson, British Empire, carbon tax, centre right, collective bargaining, cryptocurrency, David Graeber, declining real wages, degrowth, deindustrialization, Donald Trump, Elon Musk, Fellow of the Royal Society, financial intermediation, full employment, future of work, gig economy, Gunnar Myrdal, housing crisis, hydraulic fracturing, income inequality, independent contractor, intangible asset, Jeremy Corbyn, job automation, job satisfaction, Joi Ito, labour market flexibility, land value tax, libertarian paternalism, low skilled workers, lump of labour, Marc Benioff, Mark Zuckerberg, Martin Wolf, mass immigration, mass incarceration, moral hazard, Nelson Mandela, nudge theory, offshore financial centre, open economy, Panopticon Jeremy Bentham, Paul Samuelson, plutocrats, precariat, quantitative easing, randomized controlled trial, rent control, rent-seeking, Salesforce, Sam Altman, self-driving car, shareholder value, sharing economy, Silicon Valley, sovereign wealth fund, Stephen Hawking, The Future of Employment, universal basic income, Wolfgang Streeck, women in the workforce, working poor, Y Combinator, Zipcar

On the contrary, it compromises the freedom of the giver as well as the supplicant. The spread of charity has largely reflected the manifold failings of means-tested social assistance, the unfairness of conditionality, the deliberate sanctions taken against vulnerable people and the spread of economic insecurity. In the UK, for instance, over 40 per cent of referrals to food banks run by a major charity, the Trussell Trust, are due to benefit delays and sanctions.40 The fact that so many people in modern society are going to food banks and shelters demonstrates social policy failure. Private philanthropy should be marginalized again; it is an undemocratic way of shaping society and the selective well-being of individuals, groups and communities.


pages: 275 words: 84,980

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

"World Economic Forum" Davos, agricultural Revolution, Airbnb, Alan Greenspan, bank run, banks create money, bitcoin, blockchain, Bretton Woods, British Empire, Broken windows theory, Burning Man, business cycle, capital controls, cashless society, Clayton Christensen, clockwork universe, creative destruction, credit crunch, cross-border payments, cross-subsidies, crowdsourcing, cryptocurrency, David Graeber, dematerialisation, Diane Coyle, disruptive innovation, distributed ledger, Dogecoin, double entry bookkeeping, Ethereum, ethereum blockchain, facts on the ground, fake news, fault tolerance, fiat currency, financial exclusion, financial innovation, financial intermediation, floating exchange rates, Fractional reserve banking, index card, informal economy, Internet of things, invention of the printing press, invention of the telegraph, invention of the telephone, invisible hand, Irish bank strikes, Isaac Newton, Jane Jacobs, Kenneth Rogoff, knowledge economy, Kuwabatake Sanjuro: assassination market, land bank, large denomination, low interest rates, M-Pesa, market clearing, market fundamentalism, Marshall McLuhan, Martin Wolf, mobile money, Money creation, money: store of value / unit of account / medium of exchange, new economy, Northern Rock, Pingit, prediction markets, price stability, QR code, quantitative easing, railway mania, Ralph Waldo Emerson, Real Time Gross Settlement, reserve currency, Satoshi Nakamoto, seigniorage, Silicon Valley, smart contracts, social graph, special drawing rights, Suez canal 1869, technoutopianism, The future is already here, the payments system, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, wage slave, Washington Consensus, wikimedia commons

This would increase financial stability by reducing the concentration of liquidity risk and credit risk. Non-bank financial institutions, in particular, would benefit from being able to hold funds in central bank money rather than in the form of an uninsured bank account. Incidentally, Dyson and Hodgson go on to remark that the existence of digital fiat might well exacerbate bank runs as people, for whatever reasons, retreat from other forms of liquidity to risk-free central bank money. The existence of risk-free digital currency in the United Kingdom could plausibly lead to an inflow of funds from foreign banks into sterling digital cash, and that could in turn push up exchange rates.


pages: 287 words: 81,970

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

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

ANSWER: Anything can happen and it is useless to consider the possibilities when it is too late. For the time being safety deposit boxes may be safe. You are likely to be better off buying gold and keeping it in a safety deposit box if you must, than not having any at all. But do keep in mind that we have already experienced bank runs in the current crisis. Banks can close in the event of a monetary breakdown or a bank holiday. QUESTION: What about the risk of the exchange-traded funds like GLD being nationalized? That’s a lot of gold up for grabs. ANSWER: The growing mountains of gold in exchange-traded funds may indeed be an attractive target for government plunder, even though the $35 billion in market capitalization early in 2009 of the two gold ETFs is not enough to make a dent in the government’s financial predicament.


pages: 282 words: 81,873

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

"World Economic Forum" Davos, 23andMe, 4chan, affirmative action, Affordable Care Act / Obamacare, Airbnb, Amazon Mechanical Turk, Anne Wojcicki, artificial general intelligence, bank run, barriers to entry, Benevolent Dictator For Life (BDFL), Bernie Sanders, Big Tech, bitcoin, Bitcoin Ponzi scheme, Build a better mousetrap, California gold rush, cashless society, colonial rule, computer age, cryptocurrency, data is the new oil, deep learning, digital nomad, disruptive innovation, Donald Trump, Douglas Hofstadter, driverless car, Elon Musk, Evgeny Morozov, Extropian, fail fast, fake it until you make it, fake news, gamification, gentrification, gig economy, Google bus, Google Glasses, Google X / Alphabet X, Greyball, growth hacking, hacker house, Hacker News, hive mind, illegal immigration, immigration reform, independent contractor, intentional community, Internet of things, invisible hand, Isaac Newton, Jeff Bezos, job automation, Kevin Kelly, Khan Academy, Larry Ellison, Law of Accelerating Returns, Lean Startup, life extension, Lyft, Mahatma Gandhi, Marc Andreessen, Mark Zuckerberg, Menlo Park, minimum viable product, move fast and break things, mutually assured destruction, Neal Stephenson, obamacare, Parker Conrad, passive income, patent troll, Patri Friedman, Paul Graham, peer-to-peer lending, Peter H. Diamandis: Planetary Resources, Peter Thiel, platform as a service, plutocrats, Ponzi scheme, post-work, public intellectual, Ray Kurzweil, regulatory arbitrage, rent control, RFID, Robert Mercer, rolodex, Ronald Reagan, Ross Ulbricht, Ruby on Rails, Sam Altman, Sand Hill Road, Scientific racism, self-driving car, selling pickaxes during a gold rush, sharing economy, side project, Silicon Valley, Silicon Valley billionaire, Silicon Valley startup, Singularitarianism, Skype, Snapchat, Social Justice Warrior, social software, software as a service, source of truth, South of Market, San Francisco, Startup school, stealth mode startup, Steve Bannon, Steve Jobs, Steve Wozniak, TaskRabbit, tech billionaire, tech bro, tech worker, TechCrunch disrupt, technological singularity, technoutopianism, telepresence, too big to fail, Travis Kalanick, tulip mania, Tyler Cowen, Uber for X, uber lyft, ubercab, unit 8200, upwardly mobile, Vernor Vinge, vertical integration, Virgin Galactic, X Prize, Y Combinator, Zenefits

These notes, which comprised nearly 90 percent of all cash in circulation, would need to be deposited and exchanged for new bills in larger denominations. But this hassle was all for the best, the government explained—pulling the cash from circulation would “encourage” the widespread adoption of smartphone apps for digital payments. In reality, the demonetization announcement created an instant, panicked nationwide bank run, and prompted all manner of hoarding. Commerce slowed almost to a standstill, except for the lines at ATMs, which stretched on forever for months on end. Responding to criticism of the policy, the government offered up various, often contradictory rationales: rebalancing the cash supply, boosting the economy, and fighting corruption (it’s much harder to bribe someone or avoid taxes with an app that records every transaction than it is with cash).


pages: 334 words: 82,041

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

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

The destruction of the living world would be the occasion of constant protest. This apparatus of justification, or infrastructure of persuasion, and the justifying narratives it generates allow the rich to seize much of our common wealth, to trample the rights of workers and to treat the planet as their dustbin. Ideas, not armies or even banks, run the world. Ideas determine whether human creativity works for society or against it. Ever since Andrew Carnegie, John D. Rockefeller and Thomas Edison financed the publication of Herbert Spencer’s works in the late nineteenth century,2 which argued, among other propositions, that millionaires stand at the top of a scala natura established by natural selection, with which we would be foolish to interfere, and that profound economic inequalities are both natural and necessary, global oligarchs have invested heavily in the infrastructure of persuasion.


pages: 365 words: 88,125

23 Things They Don't Tell You About Capitalism by Ha-Joon Chang

accelerated depreciation, affirmative action, Alan Greenspan, AOL-Time Warner, Asian financial crisis, bank run, banking crisis, basic income, Berlin Wall, Bernie Madoff, borderless world, business logic, Carmen Reinhart, central bank independence, collateralized debt obligation, colonial rule, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, deskilling, digital divide, ending welfare as we know it, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, full employment, German hyperinflation, Gini coefficient, Glass-Steagall Act, hiring and firing, Hyman Minsky, income inequality, income per capita, invisible hand, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labour market flexibility, light touch regulation, Long Term Capital Management, low skilled workers, manufacturing employment, market fundamentalism, means of production, Mexican peso crisis / tequila crisis, microcredit, Myron Scholes, North Sea oil, offshore financial centre, old-boy network, post-industrial society, price stability, profit maximization, profit motive, purchasing power parity, rent control, Robert Solow, shareholder value, short selling, Skype, structural adjustment programs, the market place, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, Toyota Production System, trade liberalization, trickle-down economics, women in the workforce, working poor, zero-sum game

Conclusion How to rebuild the world economy The daunting task ahead of us is to completely rebuild the world economy. Things are not as bad as they were during the Great Depression only because governments have propped up demand through huge deficit spending and unprecedented easing of money supply (the Bank of England has never had a lower interest rate since it was founded in 1644), while preventing bank runs through expansion of deposit insurance and the bailing-out of many financial firms. Without these measures, and the substantial automatic increase in welfare spending (e.g., unemployment benefit), we could be living through a much worse economic crisis than that of the 1930s. There are people who believe the currently dominant free-market system to be fundamentally sound.


pages: 348 words: 82,499

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

asset allocation, bank run, Bear Stearns, Black Monday: stock market crash in 1987, buy and hold, collapse of Lehman Brothers, credit crunch, currency risk, diversification, diversified portfolio, estate planning, eurozone crisis, fixed income, high net worth, hiring and firing, Isaac Newton, junk bonds, Kickstarter, lateral thinking, low interest rates, money market fund, Northern Rock, passive investing, place-making, quantitative easing, selection bias, short selling, South Sea Bubble, technology bubble, transaction costs, Vanguard fund

For subscriptions placed with providers in previous tax years, you can transfer some or all of your holdings to a different provider. But you are only allowed to transfer your current year’s ISA subscriptions if you transfer them in their entirety. If you are transferring from an insurance company or bank-run stocks and shares ISA then re-registration may not be possible and your existing ISA provider may have to sell your investments and send cash to your new ISA provider, for you to then invest. You could, of course, choose to sell all of your ISA investments prior to transferring, which may speed up the transfer process as only cash is being transferred.


pages: 301 words: 88,082

The Great Tax Robbery: How Britain Became a Tax Haven for Fat Cats and Big Business by Richard Brooks

accounting loophole / creative accounting, bank run, Big bang: deregulation of the City of London, bonus culture, Bretton Woods, carried interest, Celtic Tiger, collateralized debt obligation, commoditize, Corn Laws, corporate social responsibility, crony capitalism, cross-border payments, Double Irish / Dutch Sandwich, financial deregulation, financial engineering, haute couture, information security, intangible asset, interest rate swap, Jarndyce and Jarndyce, mega-rich, Northern Rock, offshore financial centre, race to the bottom, shareholder value, short selling, supply-chain management, The Chicago School, The Wealth of Nations by Adam Smith, transfer pricing, two and twenty

‘Every single thing SCM [structured capital markets] does is a tax trade,’ said another source. ‘The deals start with tax and then commercial purpose is added to them. We were told that in one year SCM made between £900m and £1bn profit [for the bank] from tax avoidance.’‌34 Barclays was not the only bank running elaborate tax rings round the government. Whistle-blowers exposed Lloyds TSB as being up to similar tricks, if not on quite the same scale. The bank – a recent recipient of £17bn of public money and by then 43% owned by the taxpayer – was even fighting to salvage a tax avoidance scheme through the courts.


pages: 267 words: 85,265

That Wild Country: An Epic Journey Through the Past, Present, and Future of America's Public Lands by Mark Kenyon

American Legislative Exchange Council, bank run, clean water, Donald Trump, land tenure, off-the-grid, Ralph Waldo Emerson, Ronald Reagan

As a child, I’d spent every summer canoeing the lakes and rivers of New York’s Adirondack Mountains, and grew up boating and canoeing Michigan’s inland lakes and tributary rivers. More recently, I’d spent time kayaking and paddle boarding around the mountain lakes of Wyoming and Montana. I considered myself boat savvy. So when Chip asked, I had no hesitations. The last of the winter’s snow had just melted, and the river was swollen with runoff right to the top of its banks, running fast, thick, and frothy, swirling in front of us like just-stirred chocolate milk. Fast moving as it was, a quick assessment didn’t turn up any rapids, strainers, or looming boulders. It seemed an easy enough crossing. Chip’s wife had cause to cross the river as well, so Chip devised a plan.


pages: 268 words: 81,811

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

algorithmic trading, backtesting, bank run, barriers to entry, Bernie Madoff, Black Monday: stock market crash in 1987, Black Swan, Bob Geldof, centre right, collapse of Lehman Brothers, data science, Donald Trump, Elliott wave, eurozone crisis, family office, financial engineering, Flash crash, Great Grain Robbery, high net worth, High speed trading, information asymmetry, Jeff Bezos, Kickstarter, land bank, margin call, market design, market microstructure, Market Wizards by Jack D. Schwager, Navinder Sarao, Nick Leeson, offshore financial centre, pattern recognition, Ponzi scheme, proprietary trading, Ralph Nelson Elliott, Reminiscences of a Stock Operator, Ronald Reagan, selling pickaxes during a gold rush, sovereign wealth fund, spectrum auction, Stephen Hawking, the market place, Timothy McVeigh, Tobin tax, tulip mania, yield curve, zero-sum game

As the crisis deepened and the value of sovereign debt fell, the counterparties on the repo trades began issuing what are known as margin calls, forcing MF Global to hand over additional cash to cover potential losses. In October 2011, rating agencies downgraded the firm’s credit rating to “junk,” sparking the equivalent of a bank run, with customers calling up and demanding to withdraw their funds and lenders closing credit lines. In the frenzied final hours, a middle-ranking executive dipped into what should have been sacrosanct, segregated client funds to plug the gaps. It wasn’t enough to save the firm, and in the days after MF Global folded, it emerged that $1.6 billion belonging to twenty-six thousand retail traders, farmers, and small businesses was unaccounted for.


pages: 322 words: 84,580

The Economics of Belonging: A Radical Plan to Win Back the Left Behind and Achieve Prosperity for All by Martin Sandbu

air traffic controllers' union, Airbnb, Alan Greenspan, autonomous vehicles, balance sheet recession, bank run, banking crisis, basic income, Berlin Wall, Bernie Sanders, Big Tech, Boris Johnson, Branko Milanovic, Bretton Woods, business cycle, call centre, capital controls, carbon footprint, carbon tax, Carmen Reinhart, centre right, collective bargaining, company town, debt deflation, deindustrialization, deskilling, Diane Coyle, Donald Trump, Edward Glaeser, eurozone crisis, Fall of the Berlin Wall, financial engineering, financial intermediation, full employment, future of work, gig economy, Gini coefficient, green new deal, hiring and firing, income inequality, income per capita, industrial robot, intangible asset, job automation, John Maynard Keynes: technological unemployment, Kenneth Rogoff, knowledge economy, knowledge worker, labour market flexibility, liquidity trap, longitudinal study, low interest rates, low skilled workers, manufacturing employment, Martin Wolf, meta-analysis, mini-job, Money creation, mortgage debt, new economy, offshore financial centre, oil shock, open economy, pattern recognition, pink-collar, precariat, public intellectual, quantitative easing, race to the bottom, Richard Florida, Robert Shiller, Robert Solow, Ronald Reagan, secular stagnation, social intelligence, TaskRabbit, total factor productivity, universal basic income, very high income, winner-take-all economy, working poor

Where governments find themselves unable to borrow the money for deficit spending in their budgets, the limits of “fiscal space” are real. This happened to Greece and other countries hit by the eurozone debt crisis of 2010–12. Meanwhile, on the monetary side, the claim has been that once interest rates come close to zero—often dubbed the “zero lower bound”—central banks run out of ammunition to boost demand. In both cases, the excuse for letting economy-wide spending collapse is nevertheless weaker than it may seem. The reasons for this, however, belong to a much broader theme, which is how the West’s financial system has worked against the economy of belonging, and what policies are required to change this.


pages: 278 words: 82,771

Built on a Lie: The Rise and Fall of Neil Woodford and the Fate of Middle England’s Money by Owen Walker

activist fund / activist shareholder / activist investor, bank run, banking crisis, barriers to entry, Big bang: deregulation of the City of London, Black Monday: stock market crash in 1987, Brexit referendum, British Empire, buy and hold, call centre, carbon footprint, clean water, coronavirus, corporate governance, COVID-19, fixed income, G4S, Kickstarter, knowledge economy, liquidity trap, lockdown, mass affluent, popular capitalism, profit motive, regulatory arbitrage, shareholder value, short selling, Silicon Valley, sovereign wealth fund, stem cell, Steve Jobs, Winter of Discontent

The more fellow investors in the fund asked for their money back, the harder it would be for Kent to get its cash out. Just like with runs on a bank, when lenders are in distress and account holders queue round the block to take out their savings, funds that allow investors to withdraw their money daily are vulnerable when customers become skittish. Kent’s pension board knew all too well about the perils of a bank run. Just over a decade earlier the council had handed £50 million of taxpayers’ money and retirement savings to three Icelandic lenders, seduced by the promise of high interest rates on deposits. But when the banks – Glitnir, Landsbanki and Heritable – all buckled under the weight of the global financial crisis in 2008, those deposits were jeopardized.


pages: 300 words: 87,374

The Light That Failed: A Reckoning by Ivan Krastev, Stephen Holmes

active measures, Affordable Care Act / Obamacare, Andrei Shleifer, anti-communist, anti-globalists, bank run, Berlin Wall, Black Lives Matter, borderless world, Brexit referendum, corporate governance, David Brooks, deglobalization, deindustrialization, Deng Xiaoping, disinformation, Dissolution of the Soviet Union, Donald Trump, failed state, fake news, Fall of the Berlin Wall, Francis Fukuyama: the end of history, illegal immigration, Kickstarter, knowledge economy, kremlinology, liberal world order, mass immigration, Mikhail Gorbachev, Neil Armstrong, nuclear winter, obamacare, offshore financial centre, open borders, post-truth, postnationalism / post nation state, reserve currency, Ronald Reagan, shared worldview, South China Sea, Steve Bannon, the market place, Thorstein Veblen, too big to fail, Twitter Arab Spring, WikiLeaks

It is no secret that changing countries is easier than changing one’s country. When borders were opened after 1989, exit was favoured over voice because political reform requires the sustained cooperation of many organized social interests, while the choice to emigrate is basically a solo or single-family operation, even though (like a bank run) it can become a cascade. The mistrust of ethno-nationalist loyalties and the prospect of a politically united Europe also helped make emigration the political choice for many liberal-minded Central and East Europeans. This, alongside the vanishing of anti-communist dissidents, is again why Michnik’s moral excoriation of emigration lost all moral and emotional resonance after 1989.


pages: 291 words: 85,822

The Truth About Lies: The Illusion of Honesty and the Evolution of Deceit by Aja Raden

air gap, Ayatollah Khomeini, bank run, banking crisis, Bernie Madoff, bitcoin, blockchain, California gold rush, carbon footprint, carbon-based life, cognitive bias, cognitive dissonance, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, data science, disinformation, Donald Trump, fake news, intentional community, iterative process, low interest rates, Milgram experiment, mirror neurons, multilevel marketing, offshore financial centre, opioid epidemic / opioid crisis, placebo effect, Ponzi scheme, prosperity theology / prosperity gospel / gospel of success, Ronald Reagan, Ronald Reagan: Tear down this wall, selective serotonin reuptake inhibitor (SSRI), Silicon Valley, Steve Bannon, sugar pill, survivorship bias, theory of mind, too big to fail, transcontinental railway, Vincenzo Peruggia: Mona Lisa

Making Money Nowhere, perhaps, is a collective fiction more believed, defended, and simultaneously denied—or at least ignored—than in the realm of currency. Money isn’t real, except in our collective imaginations. “Money” is just a word for an IOU—backed not by gold or other commodities, but by tacit agreement and unconscious consensus. Money is also one of the most precarious lies there is: hence the danger of bank runs, stock market crashes, and economic collapses—all of which can only happen when the collective ceases to believe all or some portion of the lie. All versions of money are imaginary if you examine them closely enough, and they only have value because we all agree they do. But cash—paper money—is a particularly blatant example: it’s just printed slips of paper.* This makes counterfeiting hard currency particularly easy and tempting.


pages: 265 words: 80,510

The Enablers: How the West Supports Kleptocrats and Corruption - Endangering Our Democracy by Frank Vogl

"World Economic Forum" Davos, active measures, Alan Greenspan, Asian financial crisis, bank run, Bear Stearns, Bernie Sanders, blood diamond, Brexit referendum, Carmen Reinhart, centre right, corporate governance, COVID-19, crony capitalism, cryptocurrency, Donald Trump, F. W. de Klerk, failed state, Global Witness, Greensill Capital, income inequality, information security, joint-stock company, London Interbank Offered Rate, Londongrad, low interest rates, market clearing, military-industrial complex, moral hazard, Nelson Mandela, offshore financial centre, oil shale / tar sands, profit maximization, quantitative easing, Renaissance Technologies, Silicon Valley, Silicon Valley startup, stock buybacks, too big to fail, WikiLeaks

Today’s prevailing banking culture seems distant from the bygone era of Clausen and Rockefeller. Those bankers back then were not saints. Sometimes they made serious errors of judgment. As the oil-producing states in the Middle East took control of global oil prices in 1973, so they needed to find banks that could manage their staggeringly large wealth. They turned to the banks run by Rockefeller and Clausen and others, who immediately searched for opportunities to invest the oil wealth. They claimed at the time that they had sophisticated risk models guiding their record-level lending to Latin American governments. Those models were faulty. In mid-1982, Mexico announced that it could not repay its loans.


pages: 1,009 words: 329,520

The Last Tycoons: The Secret History of Lazard Frères & Co. by William D. Cohan

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", activist fund / activist shareholder / activist investor, Alan Greenspan, AOL-Time Warner, bank run, Bear Stearns, book value, Carl Icahn, carried interest, cognitive dissonance, commoditize, computer age, corporate governance, corporate raider, creative destruction, credit crunch, deal flow, diversification, Donald Trump, East Village, fear of failure, financial engineering, fixed income, G4S, Glass-Steagall Act, hiring and firing, interest rate swap, intermodal, Joseph Schumpeter, junk bonds, land bank, late fees, Long Term Capital Management, Marc Andreessen, market bubble, Michael Milken, offshore financial centre, Ponzi scheme, proprietary trading, Ralph Nader, Ralph Waldo Emerson, rolodex, Ronald Reagan, shareholder value, short squeeze, SoftBank, stock buybacks, The Nature of the Firm, the new new thing, Yogi Berra

It is the unusual role in the affair played by Felix--who told the Celler commission that he wanted Lazard to be "purer than Caesar's wife"--that concerns us here. A PREREQUISITE FOR a better understanding of what transpired--from late 1968 until the matter was once and for all resolved in 1981--is a brief overview of Lazard's by then almost fifteen-year relationship with Mediobanca, an equally secretive and enigmatic Italian investment bank run with absolute authority by Enrico Cuccia. "Very shy but very clever" is how Lazard partner Francois Voss described him. If an Italian analog to Lazard were to be conjured cosmically out of "star stuff" and plunked down in the heart of Milan, Mediobanca would be it. Like Lazard, Mediobanca in Italy had its fingers in every important deal and its hand in every important politician's pocket.

When they returned to New York a few days later and Gregory was informing Ward Woods about the developments, Felix popped his head into Gregory's office. He didn't like what he heard Gregory saying, and he ordered Woods to fire Gregory on the spot. Woods ignored Felix, and Gregory stayed. He became a partner in 1986. By late 1988, he was running banking. "Running banking at Lazard was like being dean of a business school," Gregory said. "It was not an easy thing to do because, as you know, it was Michel's firm." INTO THIS RELATIVE anarchy, intense quirkiness, and immense prosperity strolled Steven Rattner, the one Wall Street investment banker who was every bit as scarily talented, media savvy, and professionally and politically ambitious as Felix and who, much to Felix's surprise and eventual dismay, refused to be cowed by the Great Man's prowess or play by his long-established rules.

But also remember that you really should--if you do, you should be able to make a moral commitment for two terms, which would be twelve years.'" Felix asked Altman for a few days to think about the offer. He was very intrigued for any number of reasons--among them, his growing frustration with the dynamic inside Lazard. But he had never run anything before, let alone something as massively bureaucratic as the World Bank. "Running a big bureaucracy was never my cup of tea," he said. And Elizabeth was dead set against it. Aside from the requisite move to Washington, there would have been extensive travel worldwide to attend ponderous meetings. And there was also the twelve-year commitment, which would have put Felix close to seventy-eight years old by the time he left the job.


pages: 366 words: 94,209

Throwing Rocks at the Google Bus: How Growth Became the Enemy of Prosperity by Douglas Rushkoff

activist fund / activist shareholder / activist investor, Airbnb, Alan Greenspan, algorithmic trading, Amazon Mechanical Turk, Andrew Keen, bank run, banking crisis, barriers to entry, benefit corporation, bitcoin, blockchain, Burning Man, business process, buy and hold, buy low sell high, California gold rush, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, centralized clearinghouse, citizen journalism, clean water, cloud computing, collaborative economy, collective bargaining, colonial exploitation, Community Supported Agriculture, corporate personhood, corporate raider, creative destruction, crowdsourcing, cryptocurrency, data science, deep learning, disintermediation, diversified portfolio, Dutch auction, Elon Musk, Erik Brynjolfsson, Ethereum, ethereum blockchain, fiat currency, Firefox, Flash crash, full employment, future of work, gamification, Garrett Hardin, gentrification, gig economy, Gini coefficient, global supply chain, global village, Google bus, Howard Rheingold, IBM and the Holocaust, impulse control, income inequality, independent contractor, index fund, iterative process, Jaron Lanier, Jeff Bezos, jimmy wales, job automation, Joseph Schumpeter, Kickstarter, Large Hadron Collider, loss aversion, low interest rates, Lyft, Marc Andreessen, Mark Zuckerberg, market bubble, market fundamentalism, Marshall McLuhan, means of production, medical bankruptcy, minimum viable product, Mitch Kapor, Naomi Klein, Network effects, new economy, Norbert Wiener, Oculus Rift, passive investing, payday loans, peer-to-peer lending, Peter Thiel, post-industrial society, power law, profit motive, quantitative easing, race to the bottom, recommendation engine, reserve currency, RFID, Richard Stallman, ride hailing / ride sharing, Ronald Reagan, Russell Brand, Satoshi Nakamoto, Second Machine Age, shareholder value, sharing economy, Silicon Valley, Snapchat, social graph, software patent, Steve Jobs, stock buybacks, TaskRabbit, the Cathedral and the Bazaar, The Future of Employment, the long tail, trade route, Tragedy of the Commons, transportation-network company, Turing test, Uber and Lyft, Uber for X, uber lyft, unpaid internship, Vitalik Buterin, warehouse robotics, Wayback Machine, Y Combinator, young professional, zero-sum game, Zipcar

If anything, the prolonged and unnecessary depression merely paved the way for the discontent that fueled Fascism. Free local currencies were also responsible for providing a means of transaction during the Great Depression in the United States. Some were successful enough to pose a threat to central powers; others were merely successful enough to get traditional banking running again. In a much more pragmatic set of writings than those of Gesell, Yale University economist Irving Fisher argued that the sole focus of an alternative currency in such circumstances should be to increase the velocity of money.60 He advocated the use of “stamp scrip” as a weapon against deflation.61 Stamp scrip would come with the requirement that it be spent and stamped at regular intervals in order to maintain its value.


pages: 346 words: 89,180

Capitalism Without Capital: The Rise of the Intangible Economy by Jonathan Haskel, Stian Westlake

23andMe, activist fund / activist shareholder / activist investor, Airbnb, Alan Greenspan, Albert Einstein, Alvin Toffler, Andrei Shleifer, bank run, banking crisis, Bernie Sanders, Big Tech, book value, Brexit referendum, business climate, business process, buy and hold, Capital in the Twenty-First Century by Thomas Piketty, carbon credits, cloud computing, cognitive bias, computer age, congestion pricing, corporate governance, corporate raider, correlation does not imply causation, creative destruction, dark matter, Diane Coyle, Donald Trump, Douglas Engelbart, Douglas Engelbart, driverless car, Edward Glaeser, Elon Musk, endogenous growth, Erik Brynjolfsson, everywhere but in the productivity statistics, Fellow of the Royal Society, financial engineering, financial innovation, full employment, fundamental attribution error, future of work, gentrification, gigafactory, Gini coefficient, Hernando de Soto, hiring and firing, income inequality, index card, indoor plumbing, intangible asset, Internet of things, Jane Jacobs, Jaron Lanier, Jeremy Corbyn, job automation, Kanban, Kenneth Arrow, Kickstarter, knowledge economy, knowledge worker, laissez-faire capitalism, liquidity trap, low interest rates, low skilled workers, Marc Andreessen, Mother of all demos, Network effects, new economy, Ocado, open economy, patent troll, paypal mafia, Peter Thiel, pets.com, place-making, post-industrial society, private spaceflight, Productivity paradox, quantitative hedge fund, rent-seeking, revision control, Richard Florida, ride hailing / ride sharing, Robert Gordon, Robert Solow, Ronald Coase, Sand Hill Road, Second Machine Age, secular stagnation, self-driving car, shareholder value, sharing economy, Silicon Valley, six sigma, Skype, software patent, sovereign wealth fund, spinning jenny, Steve Jobs, sunk-cost fallacy, survivorship bias, tacit knowledge, tech billionaire, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Tim Cook: Apple, total factor productivity, TSMC, Tyler Cowen, Tyler Cowen: Great Stagnation, urban planning, Vanguard fund, walkable city, X Prize, zero-sum game

If banks are less willing and less able to lend to intangible-intensive businesses, but intangible-intensive businesses are becoming more common, we would expect to see complaints that banks refused to finance viable businesses becoming more common. And current regulation disallows (almost all) intangible assets as part of capital reserves that banks must hold in case of a banking crisis.5 A preponderance of unsaleable intangible assets could even, in due course, present a gradual problem for the stability of a banking system. Because bank runs are economically catastrophic, regulators require banks to hold a certain amount of reserves against every loan on their books. The amount of reserves depends on the type of loan: on the whole, loans secured against valuable assets that are easy to sell require less reserves; loans with little security require more.


pages: 255 words: 92,719

All Day Long: A Portrait of Britain at Work by Joanna Biggs

Anton Chekhov, bank run, banking crisis, Bullingdon Club, call centre, Chelsea Manning, credit crunch, David Graeber, Desert Island Discs, Downton Abbey, emotional labour, Erik Brynjolfsson, financial independence, future of work, G4S, glass ceiling, industrial robot, job automation, land reform, low skilled workers, mittelstand, Northern Rock, payday loans, Right to Buy, scientific management, Second Machine Age, Sheryl Sandberg, six sigma, Steve Jobs, trickle-down economics, unpaid internship, wages for housework, Wall-E

These businesses exhausted themselves before she started the project she runs now, Stemettes, which encourages women to pursue careers in science, technology, engineering and maths by organising hackathons and panel events sponsored by 02, Starbucks, Accenture, Deutsche Bank and Microsoft among others. On top of Stemettes she has a job at Deutsche Bank, running their internal social network. ‘I’m constantly aware that I might not be fulfilled,’ she says. ‘So I kind of pre-empt that by just doing other stuff.’ In May 2012, the coalition government announced that loans of £2,500 would be made available for entrepreneurs aged between 18 to 24 to start their own businesses before April 2015.


pages: 309 words: 95,495

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

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

“Financial systems enable the mediation of capital between those who have put aside something for consumption in the future and people who have a productive use of those resources,” Summers explained. “Those principles apply between individuals, companies, and countries. Sometimes, countries have difficulty paying the money back, and it becomes a panic, just like the game we played describing a bank run. Everyone wants to take their money out at once, and everybody can’t take their money out at once. So there is a need to provide confidence.” Confidence is central to Summers’s thinking about crises. We regard confidence as good and moral hazard as bad, but, he likes to note, they are two sides of the same coin.


pages: 322 words: 87,181

Straight Talk on Trade: Ideas for a Sane World Economy by Dani Rodrik

3D printing, airline deregulation, Asian financial crisis, bank run, barriers to entry, behavioural economics, Berlin Wall, Bernie Sanders, blue-collar work, Bretton Woods, BRICs, business cycle, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carbon tax, Carmen Reinhart, carried interest, central bank independence, centre right, collective bargaining, conceptual framework, continuous integration, corporate governance, corporate social responsibility, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Donald Trump, endogenous growth, Eugene Fama: efficient market hypothesis, eurozone crisis, export processing zone, failed state, financial deregulation, financial innovation, financial intermediation, financial repression, floating exchange rates, full employment, future of work, general purpose technology, George Akerlof, global value chain, income inequality, inflation targeting, information asymmetry, investor state dispute settlement, invisible hand, Jean Tirole, Kenneth Rogoff, low interest rates, low skilled workers, manufacturing employment, market clearing, market fundamentalism, meta-analysis, moral hazard, Nelson Mandela, new economy, offshore financial centre, open borders, open economy, open immigration, Pareto efficiency, postindustrial economy, precautionary principle, price stability, public intellectual, pushing on a string, race to the bottom, randomized controlled trial, regulatory arbitrage, rent control, rent-seeking, Richard Thaler, Robert Gordon, Robert Shiller, Ronald Reagan, Sam Peltzman, Silicon Valley, Solyndra, special economic zone, spectrum auction, Steven Pinker, tacit knowledge, The Rise and Fall of American Growth, the scientific method, The Wealth of Nations by Adam Smith, Thomas L Friedman, too big to fail, total factor productivity, trade liberalization, transaction costs, Tyler Cowen, unorthodox policies, Washington Consensus, World Values Survey, zero-sum game, éminence grise

First, there are errors of omission—cases in which blind spots in the consensus prevent economists from being able to see troubles looming ahead. A prominent example was the failure of economists to grasp the dangerous confluence of circumstances that produced the global financial crisis. As I argued earlier, the oversight was not due to the lack of models of bubbles, asymmetric information, distorted incentives, or bank runs. It was due to the fact that such models were neglected in favor of models that stressed efficient markets. Then there are the errors of commission—cases in which economists’ fixation on one particular model of the world makes them complicit in the administration of policies whose failure could have been predicted ahead of time.


pages: 369 words: 94,588

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

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

It offered a way of dealing with the surplus absorption problem. But where was the surplus cash, the surplus liquidity, to come from? By the 1990s the answer was clear: increased leverage. Banks typically lend, say, three times the value of their deposits on the theory that depositors will never all cash out at the same time. When a bank run does occur the bank will almost certainly have to close its doors because it will never have enough cash in hand to cover its obligations. From the 1990s on, the banks upped this debt–deposit ratio, often lending to each other. Banking became more indebted than any other sector of the economy. By 2005 the leveraging ratio went as high as 30 to 1.


pages: 326 words: 93,522

Underground, Overground by Andrew Martin

bank run, Boris Johnson, congestion charging, Crossrail, death from overwork, garden city movement, gentrification, Large Hadron Collider, Northpointe / Correctional Offender Management Profiling for Alternative Sanctions, plutocrats, Stephen Fry, traveling salesman, V2 rocket

(Or, when everyone gets off the train at Bank, you could stay on, and go back to Waterloo.) It might be an idea to set yourself up with a flat near Bank and a job near Waterloo. You would more or less always have the train to yourself. But be warned, both sides of the Trav-o-lator, or moving walkway, at Bank run in the same direction – out of the station and into the street – in the morning peak. So if you were so mad as to want to descend towards – as opposed to ascend from – the Waterloo & City platforms at Bank in the morning, you would have to use the long slope. I once asked a ticket platform guard at Bank why both tracks of the Travel-o-lator didn’t run towards the Drain platforms in the evening peak (because they don’t; they run alternately then).


pages: 293 words: 88,490

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

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

A public pronouncement might lead others to act in a way that will lead that pronouncement to be true, even if there’s no basis in fact. The sarcastic website Gawker proclaims, “Today’s gossip is tomorrow’s news.” In financial markets, that is too often the case. History is rife with examples of bank runs precipitated by depositors’ or investors’ beliefs, whether unfounded or not, that an institution might be in trouble. In 2008, the boss of Lehman Brothers, Richard Fuld, blamed his firm’s implosion on those circumstances. In 1907, fear that the Knickerbocker Trust was foundering caused the entire financial system to become unglued until J.


pages: 288 words: 89,781

The Classical School by Callum Williams

"Friedman doctrine" OR "shareholder theory", bank run, banking crisis, basic income, Brexit referendum, British Empire, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Charles Babbage, complexity theory, Corn Laws, David Ricardo: comparative advantage, death from overwork, deindustrialization, Donald Trump, double entry bookkeeping, falling living standards, Fellow of the Royal Society, full employment, Gini coefficient, Gordon Gekko, greed is good, helicopter parent, income inequality, invisible hand, Jevons paradox, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, land reform, low skilled workers, Mahatma Gandhi, Martin Wolf, means of production, Meghnad Desai, minimum wage unemployment, Modern Monetary Theory, new economy, New Journalism, non-tariff barriers, Paul Samuelson, Post-Keynesian economics, purchasing power parity, Ronald Coase, secular stagnation, Silicon Valley, spinning jenny, The Wealth of Nations by Adam Smith, Thomas Malthus, universal basic income

One story, “Berkeley the Banker”, is an argument in favour of a gold standard–ie, where a currency could be freely exchanged for some quantity of gold bullion. A confectioner is given a five-pound note in exchange for some sweets. The confectioner finds that she does not have enough change, and says, “Oh, I can’t change that note.” People misunderstand her as saying that there is not enough gold to exchange the note; a bank run ensues. “Under a gold standard,” explains Annette Van, “citizens of the town… never could have misinterpreted [the] remarks–they would have known that the note must be honoured and that, therefore, the confectioner merely lacked the correct change.” (As you can probably tell, Martineau is not the world’s subtlest writer.)


pages: 326 words: 91,532

The Pay Off: How Changing the Way We Pay Changes Everything by Gottfried Leibbrandt, Natasha de Teran

"World Economic Forum" Davos, Alan Greenspan, Ayatollah Khomeini, bank run, banking crisis, banks create money, Bear Stearns, Big Tech, bitcoin, blockchain, call centre, cashless society, Clayton Christensen, cloud computing, coronavirus, COVID-19, Credit Default Swap, cross-border payments, cryptocurrency, David Graeber, Donald Trump, Edward Snowden, Ethereum, ethereum blockchain, financial exclusion, global pandemic, global reserve currency, illegal immigration, information asymmetry, initial coin offering, interest rate swap, Internet of things, Irish bank strikes, Julian Assange, large denomination, light touch regulation, lockdown, low interest rates, M-Pesa, machine readable, Money creation, money: store of value / unit of account / medium of exchange, move fast and break things, Network effects, Northern Rock, off grid, offshore financial centre, payday loans, post-industrial society, printed gun, QR code, RAND corporation, ransomware, Real Time Gross Settlement, reserve currency, Rishi Sunak, Silicon Valley, Silicon Valley startup, Skype, smart contracts, sovereign wealth fund, special drawing rights, tech billionaire, the payments system, too big to fail, transaction costs, WikiLeaks, you are the product

Large depositors (who are not covered by deposit insurance) may prefer to convert their bank deposits into CBDCs, especially in times of uncertainty about the banking sector’s solidity, as many depositors indeed were at the height of the last financial crisis. Doing so could suck liquidity out of commercial banks, hamper their ability to lend, cause bank runs and exacerbate a crisis. There are also political considerations. Issuing a CBDC could lead to ‘dollarisation’ (whereby people start to use the US dollar alongside or instead of their local currency), particularly in countries whose citizens don’t trust the national currency. This would be the digital equivalent of what has been happening with physical dollars and euros, many of which circulate in Latin America and Africa (in the case of the dollar) or Eastern Europe (in the case of the euro), as described in Chapter 4.


Upstream: The Quest to Solve Problems Before They Happen by Dan Heath

"Hurricane Katrina" Superdome, Affordable Care Act / Obamacare, airport security, Albert Einstein, bank run, British Empire, Buckminster Fuller, call centre, cloud computing, cognitive dissonance, colonial rule, correlation does not imply causation, cuban missile crisis, en.wikipedia.org, epigenetics, food desert, high-speed rail, Housing First, illegal immigration, Internet of things, mandatory minimum, millennium bug, move fast and break things, Nick Bostrom, payday loans, Ralph Nader, RAND corporation, randomized controlled trial, self-driving car, Skype, Snapchat, subscription business, systems thinking, urban planning, Watson beat the top human players on Jeopardy!, Y2K

Public panic was as much of a threat as the technical bugs. Consider that, according to Koskinen, at any given time about 2% of ATM machines aren’t working. They’re broken or out of money. But on January 1, 2000, a nonfunctioning ATM might be interpreted as a Y2K problem, fueling fear. One of everyone’s biggest concerns was the possibility of a bank run. If customers worried about not being able to get money, or if they worried about banks failing, they might start pulling out money in the weeks before the millennium. And if other customers saw that, they might worry, in turn: Those people are probably being paranoid, but I don’t want them taking all the money before I can get some, so I better make some withdrawals myself.


pages: 278 words: 91,332

Carmageddon: How Cars Make Life Worse and What to Do About It by Daniel Knowles

active transport: walking or cycling, autonomous vehicles, Bandra-Worli Sea Link, bank run, big-box store, bike sharing, Boeing 747, Boris Johnson, business cycle, car-free, carbon footprint, congestion charging, congestion pricing, coronavirus, COVID-19, Crossrail, decarbonisation, deindustrialization, Detroit bankruptcy, Donald Shoup, Donald Trump, driverless car, Elaine Herzberg, Elon Musk, first-past-the-post, Ford Model T, Frank Gehry, garden city movement, General Motors Futurama, gentrification, ghettoisation, high-speed rail, housing crisis, Hyperloop, Induced demand, James Watt: steam engine, Jane Jacobs, Jeremy Corbyn, Jevons paradox, Lewis Mumford, lockdown, Lyft, megacity, megastructure, New Urbanism, Northern Rock, parking minimums, Piers Corbyn, Richard Florida, ride hailing / ride sharing, safety bicycle, self-driving car, Silicon Valley, Southern State Parkway, Steve Jobs, TED Talk, Tesla Model S, The Death and Life of Great American Cities, the High Line, Traffic in Towns by Colin Buchanan, Uber and Lyft, uber lyft, upwardly mobile, urban planning, urban renewal, walkable city, white flight, white picket fence, Yom Kippur War, young professional

The result will, supposedly, be a big increase is the capacity of motorways, as people no longer have to travel several car lengths apart for safety reasons. Already, this is used as an argument for why investment in new public transport, such as trains, is redundant. In Britain Matt Ridley, a Conservative member of the House of Lords who was chairman of Northern Rock, the only British bank to suffer a bank run in more than a century, is among those who reckon that HS2, Britain’s new high-speed railway, will quickly be made redundant by autonomous vehicles. So too do the Taxpayers’ Alliance, a group that opposes any government spending on anything. In the immediate term, the problem with this is that despite decades of development, autonomous driving technology has scarcely improved enough to navigate normal suburban streets at 30 miles per hour.


pages: 270 words: 88,213

Rough Sleepers: Dr. Jim O'Connell's Urgent Mission to Bring Healing to Homeless People by Tracy Kidder

Abraham Maslow, Affordable Care Act / Obamacare, bank run, coronavirus, feminist movement, fixed income, gentrification, income inequality, Jane Jacobs, medical residency, meta-analysis, military-industrial complex, obamacare, San Francisco homelessness, The Death and Life of Great American Cities, The Soul of a New Machine, War on Poverty

He went on: Andy had planned to leave this morning, but Mike Jellison, the recovery coach, had talked him out of it, and by the way, Nick was about to lose his housing again. And even though Jackie looked clean, he was undernourished—“He don’t eat much at all, Jim.” BJ almost always figured in Tony’s reports, and the news was rarely good. BJ had refused to come into McInnis, or he had left McInnis AMA, because he got a check in the mail and missed the bank run, so he took off to cash the check and find some crack cocaine. “BJ’s big time wit’ crack now, Jim. That’s all he talks about. How do you go from alcohol to that? Big jump. I don’t know how he got on it, but I know the last check he got, he had four hundred seventy dollars, and he blew it all on crack, and he lied, he said someone ripped him off.”


pages: 356 words: 103,944

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

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

Modern economies have invented powerful tools against this pathology. Their central banks act as lenders-of-last-resort, providing the liquidity needed to stabilize troubled banks and stem potential panic. In addition, bank deposits are insured up to certain limits in most countries. Thanks to these governmental safeguards, conventional bank runs have become a thing of the past. Except in international finance. The countries of East Asia had been doing just what traditional commercial banks do. They borrowed short term in international financial markets to finance domestic investments. (Short-term debt was preferred both because it was cheaper and because prevailing capital-adequacy standards required lenders to set aside less capital when they were extending short-term loans.)


pages: 443 words: 98,113

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

"World Economic Forum" Davos, 3D printing, Airbnb, Alan Greenspan, Albert Einstein, Amazon Mechanical Turk, anti-fragile, Asian financial crisis, asset-backed security, bank run, banking crisis, basic income, Ben Bernanke: helicopter money, Bernie Sanders, Big bang: deregulation of the City of London, Big Tech, bilateral investment treaty, Bonfire of the Vanities, Boris Johnson, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, carried interest, cashless society, central bank independence, centre right, Clayton Christensen, collapse of Lehman Brothers, collective bargaining, commons-based peer production, credit crunch, crony capitalism, cross-border payments, crowdsourcing, debt deflation, declining real wages, deindustrialization, disruptive innovation, Doha Development Round, Donald Trump, Double Irish / Dutch Sandwich, ending welfare as we know it, eurozone crisis, Evgeny Morozov, falling living standards, financial deregulation, financial innovation, Firefox, first-past-the-post, future of work, Garrett Hardin, gentrification, gig economy, Goldman Sachs: Vampire Squid, Greenspan put, Growth in a Time of Debt, housing crisis, income inequality, independent contractor, information retrieval, intangible asset, invention of the steam engine, investor state dispute settlement, it's over 9,000, James Watt: steam engine, Jeremy Corbyn, job automation, John Maynard Keynes: technological unemployment, labour market flexibility, light touch regulation, Long Term Capital Management, low interest rates, lump of labour, Lyft, manufacturing employment, Mark Zuckerberg, market clearing, Martin Wolf, means of production, megaproject, mini-job, Money creation, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, Neil Kinnock, non-tariff barriers, North Sea oil, Northern Rock, nudge unit, Occupy movement, offshore financial centre, oil shale / tar sands, open economy, openstreetmap, patent troll, payday loans, peer-to-peer lending, Phillips curve, plutocrats, Ponzi scheme, precariat, quantitative easing, remote working, rent control, rent-seeking, ride hailing / ride sharing, Right to Buy, Robert Gordon, Ronald Coase, Ronald Reagan, Sam Altman, savings glut, Second Machine Age, secular stagnation, sharing economy, Silicon Valley, Silicon Valley startup, Simon Kuznets, SoftBank, sovereign wealth fund, Stephen Hawking, Steve Ballmer, structural adjustment programs, TaskRabbit, The Chicago School, The Future of Employment, the payments system, The Rise and Fall of American Growth, Thomas Malthus, Thorstein Veblen, too big to fail, Tragedy of the Commons, Travis Kalanick, Uber and Lyft, Uber for X, uber lyft, Y Combinator, zero-sum game, Zipcar

Like its counterparts in the USA, the firm bundled up these risky mortgages and sold them as income-generating assets to investors, using the proceeds to help pay its debts. When the credit crunch came in 2007, the demand for securitised mortgage assets dried up and Northern Rock was unable to meet debt commitments. There was a run on the bank, the first UK bank run in 150 years, and in 2008 it was taken into state ownership. Billions of pounds of outstanding mortgages remained, many in arrears. The government held on to them until the market picked up. Then, in 2015, it sold a ‘book of loans’, the collective mortgage debt of 125,000 households, to an American private equity group, Cerberus, for £13 billion.


pages: 831 words: 98,409

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

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

Accordingly, their views, business models, and risk appetites closely resemble one another.38 The tendency to act in concert leads to “executive contagion” when collective behavior at the highest level spreads through the system and destabilizes it. The term “contagion” is derived from epidemiology and means transmission by contact. In finance, such contagion can be triggered by panics such as bank runs, in which so many savers concurrently withdraw their deposits that institutions become illiquid and eventually insolvent, as in Jimmy Stewart’s It’s a Wonderful Life. By the same token, loss of faith and panic can spread among executives as well. Such executive contagion starts at the top, spreads laterally, and cascades down the system—often with grave consequences.


pages: 391 words: 102,301

Zero-Sum Future: American Power in an Age of Anxiety by Gideon Rachman

"World Economic Forum" Davos, Alan Greenspan, Asian financial crisis, bank run, battle of ideas, Berlin Wall, Big bang: deregulation of the City of London, Bonfire of the Vanities, borderless world, Bretton Woods, BRICs, capital controls, carbon tax, centre right, clean water, collapse of Lehman Brothers, colonial rule, currency manipulation / currency intervention, deindustrialization, Deng Xiaoping, Doha Development Round, energy security, failed state, Fall of the Berlin Wall, financial deregulation, Francis Fukuyama: the end of history, full employment, Glass-Steagall Act, global reserve currency, Global Witness, Golden arches theory, Great Leap Forward, greed is good, Greenspan put, Hernando de Soto, illegal immigration, income inequality, invisible hand, It's morning again in America, Jeff Bezos, laissez-faire capitalism, Live Aid, low interest rates, market fundamentalism, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, moral hazard, mutually assured destruction, Naomi Klein, Nelson Mandela, offshore financial centre, Oklahoma City bombing, open borders, open economy, Peace of Westphalia, peak oil, pension reform, plutocrats, popular capitalism, price stability, RAND corporation, reserve currency, rising living standards, road to serfdom, Ronald Reagan, Savings and loan crisis, shareholder value, Sinatra Doctrine, sovereign wealth fund, special economic zone, Steve Jobs, Stewart Brand, Tax Reform Act of 1986, The Chicago School, The Great Moderation, The Myth of the Rational Market, Thomas Malthus, Timothy McVeigh, trickle-down economics, Washington Consensus, Winter of Discontent, zero-sum game

It provoked a short but very deep recession and required emergency loans of billions of dollars from the United States. The emerging-market panic of 1998, which started in Russia, sparked another bout of capital flight in Latin America, mirroring the debt crisis of 1982 that had provoked the free-market reforms in the first place. There were severe downturns and bank runs across Latin America. When I visited Argentina for the first time in 2002, I encountered the tail end of that country’s crisis, leaving me with a vivid impression of what a financial system in crisis looks like. The banks resembled mini-fortresses, buttressed by corrugated iron—with one narrow door through which customers filed, in the hope of withdrawing money.


Rockonomics: A Backstage Tour of What the Music Industry Can Teach Us About Economics and Life by Alan B. Krueger

"Friedman doctrine" OR "shareholder theory", accounting loophole / creative accounting, Affordable Care Act / Obamacare, Airbnb, Alan Greenspan, autonomous vehicles, bank run, behavioural economics, Berlin Wall, bitcoin, Bob Geldof, butterfly effect, buy and hold, congestion pricing, creative destruction, crowdsourcing, digital rights, disintermediation, diversified portfolio, Donald Trump, endogenous growth, Gary Kildall, George Akerlof, gig economy, income inequality, independent contractor, index fund, invisible hand, Jeff Bezos, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kickstarter, Larry Ellison, Live Aid, Mark Zuckerberg, Moneyball by Michael Lewis explains big data, moral hazard, Multics, Network effects, obamacare, offshore financial centre, opioid epidemic / opioid crisis, Paul Samuelson, personalized medicine, power law, pre–internet, price discrimination, profit maximization, random walk, recommendation engine, rent-seeking, Richard Thaler, ride hailing / ride sharing, Saturday Night Live, Skype, Steve Jobs, the long tail, The Wealth of Nations by Adam Smith, TikTok, too big to fail, transaction costs, traumatic brain injury, Tyler Cowen, ultimatum game, winner-take-all economy, women in the workforce, Y Combinator, zero-sum game

In many walks of life, an understanding of how reliance on interconnections generates a power law relationship can help us understand why extreme events—like a neighbor’s daughter becoming the next Taylor Swift, or a devastating blackout that lasts for days—sometimes occur. The type of social dynamic that generates power laws—where people’s beliefs, knowledge, and behavior are influenced by the beliefs, knowledge, and behavior of their associates—can help explain the occurrence of critically important macroeconomic phenomena, including bank runs, financial crises, and housing bubbles. In particular, this type of social dynamic, where individuals’ views are influenced by others’, can create a self-fulfilling prophecy. For example, the widespread belief that home prices will rise causes more and more people to jump into the housing market before prices rise, in turn causing home prices to be bid up even further.


pages: 354 words: 99,690

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

bank run, Boris Johnson, British Empire, cakes and ale, cognitive dissonance, collapse of Lehman Brothers, credit crunch, don't be evil, double helix, Downton Abbey, Dr. Strangelove, Etonian, eurozone crisis, Golden age of television, haute cuisine, high-speed rail, Julian Assange, lateral thinking, Northern Rock, Ocado, offshore financial centre, payday loans, plutocrats, profit motive, Russell Brand, sensible shoes, Skype, The Wisdom of Crowds, WikiLeaks

The fact that so many felt otherwise is a sign of how hysterical with envy some people, and a lot of news reporting, have become. * Occasionally, just for a moment, I think it might be a good thing if money ceased to exist, if the eurozone sovereign debt crisis spiralled so hopelessly out of control that there was an international bank run of catastrophic proportions, and so all of the numbers – and, in millions of cases, negative numbers – next to our names on screens became academic because the screen-owning institutions had run out of the pieces of paper that the numbers were supposed to represent – and indeed weren’t even sure for how much longer they’d receive the electricity to run the computers that stored these now notional numbers.


pages: 323 words: 95,939

Present Shock: When Everything Happens Now by Douglas Rushkoff

"Hurricane Katrina" Superdome, algorithmic trading, Alvin Toffler, Andrew Keen, bank run, behavioural economics, Benoit Mandelbrot, big-box store, Black Swan, British Empire, Buckminster Fuller, business cycle, cashless society, citizen journalism, clockwork universe, cognitive dissonance, Credit Default Swap, crowdsourcing, Danny Hillis, disintermediation, Donald Trump, double helix, East Village, Elliott wave, European colonialism, Extropian, facts on the ground, Flash crash, Future Shock, game design, global pandemic, global supply chain, global village, Howard Rheingold, hypertext link, Inbox Zero, invention of agriculture, invention of hypertext, invisible hand, iterative process, James Bridle, John Nash: game theory, Kevin Kelly, laissez-faire capitalism, lateral thinking, Law of Accelerating Returns, Lewis Mumford, loss aversion, mandelbrot fractal, Marshall McLuhan, Merlin Mann, messenger bag, Milgram experiment, mirror neurons, mutually assured destruction, negative equity, Network effects, New Urbanism, Nicholas Carr, Norbert Wiener, Occupy movement, off-the-grid, passive investing, pattern recognition, peak oil, Peter Pan Syndrome, price mechanism, prisoner's dilemma, Ralph Nelson Elliott, RAND corporation, Ray Kurzweil, recommendation engine, scientific management, selective serotonin reuptake inhibitor (SSRI), Silicon Valley, SimCity, Skype, social graph, South Sea Bubble, Steve Jobs, Steve Wozniak, Steven Pinker, Stewart Brand, supply-chain management, technological determinism, the medium is the message, The Wisdom of Crowds, theory of mind, Tragedy of the Commons, Turing test, upwardly mobile, Whole Earth Catalog, WikiLeaks, Y2K, zero-sum game

Opposite reactions to collapse of political narrative, the Tea Party yearns for finality while the Occupy movement attempts to sustain indeterminacy. Inspired by the social-media-influenced revolutions of the Arab Spring, Occupy Wall Street began as a one-day campaign to call attention to the inequities inherent in a bank-run, quarterly-focused, debt-driven economy. It morphed into something of a permanent revolution, however, dedicated to producing new models of political and economic activity by its very example. Tea Partiers mean to wipe out the chaotic confusion of a world without definitive stories; the Occupiers mean to embed themselves within it so that new forms may emerge.


pages: 414 words: 101,285

The Butterfly Defect: How Globalization Creates Systemic Risks, and What to Do About It by Ian Goldin, Mike Mariathasan

air freight, air traffic controllers' union, Andrei Shleifer, Asian financial crisis, asset-backed security, bank run, barriers to entry, Basel III, Bear Stearns, behavioural economics, Berlin Wall, biodiversity loss, Bretton Woods, BRICs, business cycle, butterfly effect, carbon tax, clean water, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, connected car, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, digital divide, discovery of penicillin, diversification, diversified portfolio, Douglas Engelbart, Douglas Engelbart, Edward Lorenz: Chaos theory, energy security, eurozone crisis, Eyjafjallajökull, failed state, Fairchild Semiconductor, Fellow of the Royal Society, financial deregulation, financial innovation, financial intermediation, fixed income, Gini coefficient, Glass-Steagall Act, global pandemic, global supply chain, global value chain, global village, high-speed rail, income inequality, information asymmetry, Jean Tirole, John Snow's cholera map, Kenneth Rogoff, light touch regulation, Long Term Capital Management, market bubble, mass immigration, megacity, moral hazard, Occupy movement, offshore financial centre, open economy, precautionary principle, profit maximization, purchasing power parity, race to the bottom, RAND corporation, regulatory arbitrage, reshoring, risk free rate, Robert Solow, scientific management, Silicon Valley, six sigma, social contagion, social distancing, Stuxnet, supply-chain management, systems thinking, tail risk, TED Talk, The Great Moderation, too big to fail, Toyota Production System, trade liberalization, Tragedy of the Commons, transaction costs, uranium enrichment, vertical integration

Individual actors or small groups who, for political, religious, economic, or psychotic reasons, wish to attack society can gain leverage from the information, supplies, and high-impact nodes that are characteristic of globalization. Building resilience requires an appreciation of the corresponding vulnerabilities. The aim should thus be to minimize the threats but also to ensure that no individual action could lead to cascading risks. Ensuring that individuals or small groups cannot cause a bank run or the collapse of a key transport, cyber, energy, water, or other vital hub should be a priority of all governments concerned with the stability of the “ecosystem” that provides the foundation for our globalized society. LESSONS FOR CHALLENGING GLOBAL INEQUALITIES Three key policy lessons for managing global inequalities follow from the discussion in this chapter.


pages: 402 words: 98,760

Deep Sea and Foreign Going by Rose George

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

The canal takes 14 hours to transit and has existed in some form ever since Pharaoh Senusret III, ruler in 1874 BC, chopped through the land mass to make a passage between open seas. It was built by Egyptian labourers working to the design of the French engineer Ferdinand de Lesseps; 20,000 new workers had to be drafted in every 10 months, according to the official Suez canal website, ‘from the ranks of peasantry’. Alongside its banks runs a railway and a ‘sweet water canal’. I write in my notebook that somewhere nearby there is a vegetable oil pipeline marked on a chart, but I never find it again. The Suez Canal took 10 years to construct, is 100 miles long, and earns the Egyptian government £3 billion a year. Right, say the crew.


pages: 357 words: 99,684

Why It's Still Kicking Off Everywhere: The New Global Revolutions by Paul Mason

anti-globalists, back-to-the-land, balance sheet recession, bank run, banking crisis, Berlin Wall, business cycle, capital controls, capitalist realism, centre right, Chekhov's gun, citizen journalism, collapse of Lehman Brothers, collective bargaining, creative destruction, credit crunch, Credit Default Swap, currency manipulation / currency intervention, currency peg, disinformation, do-ocracy, eurozone crisis, Fall of the Berlin Wall, floating exchange rates, foreign exchange controls, Francis Fukuyama: the end of history, full employment, ghettoisation, illegal immigration, informal economy, land tenure, Leo Hollis, low skilled workers, mass immigration, means of production, megacity, Mohammed Bouazizi, Naomi Klein, Network effects, New Journalism, Occupy movement, price stability, quantitative easing, race to the bottom, rising living standards, short selling, Slavoj Žižek, Stewart Brand, strikebreaker, union organizing, We are the 99%, Whole Earth Catalog, WikiLeaks, Winter of Discontent, women in the workforce, working poor, working-age population, young professional

There is a ‘heroic’ period of globalization, beginning in 1989 and ending around 1999, during which China’s entry into the world market helps suppress inflation; where falling wages are offset by a seemingly sustainable expansion of credit; where house prices rise, allowing the credit to be paid off and a whole bunch of innovations are suddenly deployed—above all mobile telephony and broadband Internet. Then there is a second phase in which the disruption overwhelms the innovations: China’s increased consumption of raw materials creates world-wide inflationary pressure; the house-price boom ends, because the banks run out of poverty-stricken workers to lend to; mass migration begins to exert a downward pressure on the wages of unskilled workers in Europe and the USA; the financial dynamic overtakes, dominates and ultimately chokes off the dynamics of production, trade and innovation. The rise of finance, wage stagnation, the capture of regulation and politics by a financial elite, consumption fuelled by credit rather than wages: it all blew up spectacularly.


pages: 391 words: 99,963

The Weather of the Future by Heidi Cullen

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, air freight, American Society of Civil Engineers: Report Card, availability heuristic, back-to-the-land, bank run, California gold rush, carbon footprint, clean water, colonial rule, data science, Easter island, energy security, hindcast, illegal immigration, Intergovernmental Panel on Climate Change (IPCC), Isaac Newton, Kickstarter, mass immigration, Medieval Warm Period, megacity, millennium bug, ocean acidification, out of africa, Silicon Valley, smart cities, trade route, urban planning, Y2K

My roommate had decided, uncharacteristically, that she was going to Times Square with some friends, and so I tagged along not wanting to be home alone in the apartment. It was almost midnight, so Fifty-Ninth Street was as close as we could get to Times Square. Despite frigid temperatures and months of media hype with dire predictions of power outages, bank runs, and other random catastrophes, there we all were. Hundreds of thousands of people from all over the world, ready to hug a stranger and ring in the New Year. As always, there was a sense that the New Year—in this case, it was also celebrated as the start of a new millennium—held the possibility of something better.


pages: 349 words: 98,868

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

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

Let’s try to imagine it for a moment. The banking crisis of autumn 2008 came after a year in which banks had been increasingly reluctant to lend to each other, or what was known as the “credit crunch.” If banks were allowed to collapse, confidence in the overall banking system would likely evaporate, producing bank runs, which could only be averted if banks remained closed, withdrawing all credit-making facilities in the process. The sensible thing for customers to do would be to extract as much cash from ATMs as possible until they were empty. Banks would not fill them up again, and payment processing facilities would be suspended.


pages: 318 words: 99,881

Rolling Nowhere by Ted Conover

bank run, Berlin Wall, intermodal, traveling salesman, young professional

Once it had been a cool, pretty spot, according to Bill, but now it was, in his words, “a slum.” Every slob in the world appeared to have jungled there, and most had left behind trash, old vegetables, grungy clothing, or shit. We poked around just the same, hoping to find something of value another tramp had left behind. But having no luck, we cleared a spot for ourselves on the small bank running down to the tracks and were about to begin lunch when two more men appeared on the scene. They were winos, with the staggers and the bottle to prove it. One looked about 50, one about 65; both wore visor caps and were having a hard time standing up. The younger, less deteriorated of the two offered us a drink from the bottle, and Bill took him up on it.


pages: 352 words: 98,561

The City by Tony Norfield

accounting loophole / creative accounting, air traffic controllers' union, anti-communist, Asian financial crisis, asset-backed security, bank run, banks create money, Basel III, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, BRICs, British Empire, capital controls, central bank independence, colonial exploitation, colonial rule, continuation of politics by other means, currency risk, dark matter, Edward Snowden, Fall of the Berlin Wall, financial innovation, financial intermediation, foreign exchange controls, Francis Fukuyama: the end of history, G4S, global value chain, Goldman Sachs: Vampire Squid, interest rate derivative, interest rate swap, Irish property bubble, Leo Hollis, linked data, London Interbank Offered Rate, London Whale, Londongrad, low interest rates, Mark Zuckerberg, Martin Wolf, means of production, Money creation, money market fund, mortgage debt, North Sea oil, Northern Rock, Occupy movement, offshore financial centre, plutocrats, purchasing power parity, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, Ronald Reagan, seigniorage, Sharpe ratio, sovereign wealth fund, Suez crisis 1956, The Great Moderation, transaction costs, transfer pricing, zero-sum game

FB2–3, at censtatd.gov.hk. 40Bank for International Settlements, ‘Triennial Central Bank Survey: Global Foreign Exchange Market Turnover in 2013’, February 2014, p. 72. 41Monetary Authority of Singapore, ‘Recent Economic Developments in Singapore’, 11 June 2013, p. 19. 42Calculated from Central Statistics Office Ireland, ‘National Accounts Output and Value Added by Activity, 2002–2009’, 29 November 2012, Table 2. 43Michael Lewis has given an excellent analysis of the Irish property disaster. He noted how the Irish government’s decision to guarantee not only bank deposits (a reasonable policy to prevent a bank run), but also bank-issued bonds, lumbered taxpayers with the losses that would otherwise have been borne by the bond investors. Michael Lewis, ‘When Irish Eyes Are Crying’, Vanity Fair, 8 February 2011. 44Calculated from Central Statistics Office Ireland, ‘National Accounts Output and Value Added by Activity, 2002–2009’, 29 November 2012. 45An enlightening discussion of Switzerland in this respect, although now somewhat dated, is Jean Ziegler, Switzerland Exposed, trans.


pages: 337 words: 96,666

Practical Doomsday: A User's Guide to the End of the World by Michal Zalewski

accounting loophole / creative accounting, AI winter, anti-communist, artificial general intelligence, bank run, big-box store, bitcoin, blockchain, book value, Buy land – they’re not making it any more, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carrington event, clean water, coronavirus, corporate governance, COVID-19, cryptocurrency, David Graeber, decentralized internet, deep learning, distributed ledger, diversification, diversified portfolio, Dogecoin, dumpster diving, failed state, fiat currency, financial independence, financial innovation, fixed income, Fractional reserve banking, Francis Fukuyama: the end of history, Haber-Bosch Process, housing crisis, index fund, indoor plumbing, information security, inventory management, Iridium satellite, Joan Didion, John Bogle, large denomination, lifestyle creep, mass immigration, McDonald's hot coffee lawsuit, McMansion, medical bankruptcy, Modern Monetary Theory, money: store of value / unit of account / medium of exchange, moral panic, non-fungible token, nuclear winter, off-the-grid, Oklahoma City bombing, opioid epidemic / opioid crisis, paperclip maximiser, passive investing, peak oil, planetary scale, ransomware, restrictive zoning, ride hailing / ride sharing, risk tolerance, Ronald Reagan, Satoshi Nakamoto, Savings and loan crisis, self-driving car, shareholder value, Silicon Valley, supervolcano, systems thinking, tech worker, Ted Kaczynski, TED Talk, Tunguska event, underbanked, urban sprawl, Wall-E, zero-sum game, zoonotic diseases

The model made lending a far less personal affair, replacing mutual indebtedness with a reality where everybody somehow owed money to a bank. More tangibly, banks—lacking the military, police, and tax powers of the government—were far more prone to crises and collapses than their state-level counterparts. In the early 20th century, the world kept running into that very problem, experiencing a series of bank runs and economic contractions that forced governments to act. At that stage, outlawing fractional-reserve banking was no longer politically or economically tenable. A simpler alternative was to let go of gold and move to fiat money—an abstract currency that eschewed any pretense, however flimsy, of being tied to any physical commodity.


pages: 331 words: 95,582

Golden Gates: Fighting for Housing in America by Conor Dougherty

Airbnb, bank run, basic income, Bay Area Rapid Transit, Bernie Sanders, Big Tech, big-box store, business logic, California gold rush, carbon footprint, commoditize, death of newspapers, desegregation, do-ocracy, don't be evil, Donald Trump, edge city, Edward Glaeser, El Camino Real, emotional labour, fixed income, fixed-gear, gentrification, Golden Gate Park, Google bus, Haight Ashbury, Home mortgage interest deduction, housing crisis, illegal immigration, income inequality, Joan Didion, Marc Andreessen, Marc Benioff, mass immigration, new economy, New Urbanism, passive income, Paul Buchheit, Peter Thiel, rent control, rent-seeking, Richard Florida, Ronald Reagan, Salesforce, San Francisco homelessness, self-driving car, sharing economy, side hustle, side project, Silicon Valley, single-payer health, software is eating the world, South of Market, San Francisco, The Rise and Fall of American Growth, universal basic income, urban planning, urban renewal, vertical integration, white flight, winner-take-all economy, working poor, Y Combinator, Yom Kippur War, young professional

The difference between those cataclysms and street homelessness is that they could be by and large explained by the ups and downs of the economy. That is, when job opportunities improved, housing conditions did too. This new thing, this literal homelessness, seemed to have little to do with the number of jobs or the level of interest rates or foreign wars or bank runs, and instead served as the most extreme example of how brutal and unstable America was becoming. It was as if the country had started specializing in creating new ways for people to be and remain subsistent while jettisoning the programs designed to help. The concurrent growth of single-occupant households and the newfound ease of procuring hard drugs—a hit of crack could cost as little as $2.50 in the 1980s, bringing the fleeting excitement of cocaine to people who previously couldn’t afford it—weakened the family tethers and made it easier to fall to the depths.


pages: 850 words: 254,117

Basic Economics by Thomas Sowell

affirmative action, air freight, airline deregulation, Alan Greenspan, American Legislative Exchange Council, bank run, barriers to entry, big-box store, British Empire, business cycle, clean water, collective bargaining, colonial rule, corporate governance, correlation does not imply causation, cotton gin, cross-subsidies, David Brooks, David Ricardo: comparative advantage, declining real wages, Dissolution of the Soviet Union, diversified portfolio, European colonialism, fixed income, Ford Model T, Fractional reserve banking, full employment, global village, Gunnar Myrdal, Hernando de Soto, hiring and firing, housing crisis, income inequality, income per capita, index fund, informal economy, inventory management, invisible hand, John Maynard Keynes: technological unemployment, joint-stock company, junk bonds, Just-in-time delivery, Kenneth Arrow, knowledge economy, labor-force participation, land reform, late fees, low cost airline, low interest rates, low skilled workers, means of production, Mikhail Gorbachev, minimum wage unemployment, moral hazard, offshore financial centre, oil shale / tar sands, payday loans, Phillips curve, Post-Keynesian economics, price discrimination, price stability, profit motive, quantitative easing, Ralph Nader, rent control, rent stabilization, road to serfdom, Ronald Reagan, San Francisco homelessness, Silicon Valley, surplus humans, The Bell Curve by Richard Herrnstein and Charles Murray, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, transcontinental railway, Tyler Cowen, Vanguard fund, War on Poverty, We are all Keynesians now

Now there was no longer a reason for depositors to start a run on a bank, so very few banks collapsed, and as a result there was less likelihood of a sudden and disastrous reduction of the nation’s total supply of money and credit. While the Federal Deposit Insurance Corporation is a sort of firewall to prevent bank failures from spreading throughout the system, a more fine-tuned way of trying to control the national supply of money and credit is through the Federal Reserve System. The Federal Reserve is a central bank run by the government to control all the private banks. It has the power to tell the banks what fraction of their deposits must be kept in reserve, with only the remainder being allowed to be lent out. It also lends money to the banks, which the banks can then re-lend to the general public. By setting the interest rate on the money that it lends to the banks, the Federal Reserve System indirectly controls the interest rate that the banks will charge the general public.

But state deposit insurance proved to be inadequate to its task. During the 1920s, and especially during the Great Depression of the 1930s, the thousands of American banks that failed were concentrated overwhelmingly in small communities in states with laws against branch banking.{611} Federal deposit insurance, created in 1935, put an end to ruinous bank runs, but it was solving a problem largely created by other government interventions. In Canada, not a single bank failed during the period when thousands of American banks were failing, even though the Canadian government did not provide bank deposit insurance during that era. But Canada had 10 banks with 3,000 branches from coast to coast.{612} That spread the risks of a given bank among many locations with different economic conditions.


pages: 1,202 words: 424,886

Stigum's Money Market, 4E by Marcia Stigum, Anthony Crescenzi

accounting loophole / creative accounting, Alan Greenspan, Asian financial crisis, asset allocation, asset-backed security, bank run, banking crisis, banks create money, Bear Stearns, Black-Scholes formula, book value, Brownian motion, business climate, buy and hold, capital controls, central bank independence, centralized clearinghouse, corporate governance, credit crunch, Credit Default Swap, cross-border payments, currency manipulation / currency intervention, currency risk, David Ricardo: comparative advantage, disintermediation, distributed generation, diversification, diversified portfolio, Dutch auction, financial innovation, financial intermediation, fixed income, flag carrier, foreign exchange controls, full employment, Glass-Steagall Act, Goodhart's law, Greenspan put, guns versus butter model, high net worth, implied volatility, income per capita, intangible asset, interest rate derivative, interest rate swap, inverted yield curve, junk bonds, land bank, large denomination, locking in a profit, London Interbank Offered Rate, low interest rates, margin call, market bubble, market clearing, market fundamentalism, Money creation, money market fund, mortgage debt, Myron Scholes, offshore financial centre, paper trading, pension reform, Phillips curve, Ponzi scheme, price mechanism, price stability, profit motive, proprietary trading, prudent man rule, Real Time Gross Settlement, reserve currency, risk free rate, risk tolerance, risk/return, Savings and loan crisis, seigniorage, shareholder value, short selling, short squeeze, tail risk, technology bubble, the payments system, too big to fail, transaction costs, two-sided market, value at risk, volatility smile, yield curve, zero-coupon bond, zero-sum game

Also the repo market, unlike the fed funds and Eurodollar markets, is an anonymous market in the sense that no other banks or brokers are tracking how much a bank borrows there. Thus, a bank can make substantial use of the repo market without impairing its liquidity. Many money market banks act as dealers in government and other exempt securities. Since a dealer by definition acts as a principal in all transactions, buying and selling for its own account, a bank running a dealer operation inevitably assumes both long and short securities positions. This can distort the amount of risk that a casual observer might believe exists on the banking industry’s balance sheet. To illustrate, consider the notional and fair value holdings of derivatives by all U.S. banks at the end of 2005.

Several large banks that receive many deposits of nondollar Eurocurrencies and also have many requests for loans denominated in those currencies actually run books in each of these currencies, matching deposits in these currencies against loans and placements in the same currencies. Doing so eliminates transactions costs associated with swaps into and out of dollars—the foreign-exchange dealers’ spreads between bid and asked prices in the spot and forward markets and some bookkeeping and ticket costs. Banks running books in Euroyen and Euro Swissy feel that this reduction in costs permits them to offer depositors and borrowers of these currencies slightly better rates than they could if they consistently swapped all the natural yen and Swiss franc business they received into dollar assets and liabilities.

A conservative corporation might, if rates are correct, add 1% to its total borrowings in order to do money market arbitrages. Less conservative corporations are willing to borrow far more. A company that borrows to finance money market arbitrages makes this activity a profit center, rather like a bank running a Eurobook or a dealer running a book in repo and reverse. A few nonfinancial firms may be running arbitrage books into the billions. More typically, the numbers run in the hundreds of millions, and then there are the smaller players with books running at $5 million, $25 million, or $50 million.


pages: 398 words: 108,889

The Paypal Wars: Battles With Ebay, the Media, the Mafia, and the Rest of Planet Earth by Eric M. Jackson

bank run, business process, call centre, creative destruction, disintermediation, Elon Musk, index fund, Internet Archive, iterative process, Joseph Schumpeter, market design, Max Levchin, Menlo Park, Metcalfe’s law, money market fund, moral hazard, Multics, Neal Stephenson, Network effects, new economy, offshore financial centre, PalmPilot, Peter Thiel, Robert Metcalfe, Sand Hill Road, shareholder value, Silicon Valley, Silicon Valley startup, telemarketer, The Chicago School, the new new thing, Turing test

Foreign bondholders grew nervous as the economic minister seized control of the central bank and raised the specter of devaluing the peso as a cheap way to pay off Argentina’s mounting debts. During the second half of 2001, Argentina’s citizens acted on these fears by emptying their bank accounts and converting their pesos into dollars. Instead of making the difficult choices needed to address the underlying economic problems, the government tried to put a stop to the bank run with a 1,000 pesos-per-month limit on withdrawals. Argentines took to the streets in protest, prompting a stream of officials, including the president, to resign. But the withdrawal limit remained in place, and at the beginning of 2002 the government ended the peso’s peg to the dollar and defaulted on its debt.


pages: 411 words: 108,119

The Irrational Economist: Making Decisions in a Dangerous World by Erwann Michel-Kerjan, Paul Slovic

"World Economic Forum" Davos, Alan Greenspan, An Inconvenient Truth, Andrei Shleifer, availability heuristic, bank run, behavioural economics, Black Swan, business cycle, Cass Sunstein, classic study, clean water, cognitive dissonance, collateralized debt obligation, complexity theory, conceptual framework, corporate social responsibility, Credit Default Swap, credit default swaps / collateralized debt obligations, cross-subsidies, Daniel Kahneman / Amos Tversky, endowment effect, experimental economics, financial innovation, Fractional reserve banking, George Akerlof, hindsight bias, incomplete markets, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, iterative process, Kenneth Arrow, Loma Prieta earthquake, London Interbank Offered Rate, market bubble, market clearing, money market fund, moral hazard, mortgage debt, Oklahoma City bombing, Pareto efficiency, Paul Samuelson, placebo effect, precautionary principle, price discrimination, price stability, RAND corporation, Richard Thaler, Robert Shiller, Robert Solow, Ronald Reagan, Savings and loan crisis, social discount rate, source of truth, statistical model, stochastic process, subprime mortgage crisis, The Wealth of Nations by Adam Smith, Thomas Bayes, Thomas Kuhn: the structure of scientific revolutions, too big to fail, transaction costs, ultimatum game, University of East Anglia, urban planning, Vilfredo Pareto

The likelihood of a given dollar amount of hurricane damage is much more objective and transparent than the likelihood of a deep recession, or, more accurately, of AAA securities trading at only pennies on the dollar. We can objectively simulate storm frequency, severity, and trajectory based on our knowledge of physical systems. We cannot objectively simulate the “madness of crowds”—by which I mean shifts in sentiment, so-called animal spirits, or runs on banks, runs on markets, or runs on consumption. Finally, cat risk is not systematic—it is not correlated with the risks of major financial markets. This means that we have a good idea of what the “fair market” price of cat risk should be. Specifically, because cat risk is diversifiable, the fair-value premium for a reinsurance contract that incurs no losses 99 percent of the time and incurs losses up to a given limit 1 percent of the time is 1 percent.


pages: 409 words: 105,551

Team of Teams: New Rules of Engagement for a Complex World by General Stanley McChrystal, Tantum Collins, David Silverman, Chris Fussell

Airbus A320, Albert Einstein, Apollo 11, Atul Gawande, autonomous vehicles, bank run, barriers to entry, Black Swan, Boeing 747, butterfly effect, call centre, Captain Sullenberger Hudson, Chelsea Manning, clockwork universe, crew resource management, crowdsourcing, driverless car, Edward Snowden, Flash crash, Frederick Winslow Taylor, global supply chain, Henri Poincaré, high batting average, Ida Tarbell, information security, interchangeable parts, invisible hand, Isaac Newton, Jane Jacobs, job automation, job satisfaction, John Nash: game theory, knowledge economy, Mark Zuckerberg, Mohammed Bouazizi, Nate Silver, Neil Armstrong, Pierre-Simon Laplace, pneumatic tube, radical decentralization, RAND corporation, scientific management, self-driving car, Silicon Valley, Silicon Valley startup, Skype, Steve Jobs, supply-chain management, systems thinking, The Wealth of Nations by Adam Smith, urban sprawl, US Airways Flight 1549, vertical integration, WikiLeaks, zero-sum game

The workings of a complicated device like an internal combustion engine might be confusing, but they ultimately can be broken down into a series of neat and tidy deterministic relationships; by the end, you will be able to predict with relative certainty what will happen when one part of the device is activated or altered. Complexity, on the other hand, occurs when the number of interactions between components increases dramatically—the interdependencies that allow viruses and bank runs to spread; this is where things quickly become unpredictable. Think of the “break” in a pool game—the first forceful strike of the colored balls with the white cue ball. Although there are only sixteen balls on the table and the physics is that of simple mechanics, it is almost impossible to predict where everything will end up.


pages: 368 words: 32,950

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

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

Around 200 companies are PLUSquoted with their listing on the PLUS primary market, as at May 2007. 7 Investment banking Introduction Investment banks raise money for clients in the capital markets, and they advise on mergers and acquisitions. Investment banking is also known as corporate finance, and this chapter explains how it works. Read it in conjunction with Chapter 6, which covers new issues. Overview In the lucrative area of investment banking, the procedures for getting together a syndicate of banks, running a book and underwriting are broadly similar for issuing equities, on which this chapter is mainly focused, and debt. Banks are increasingly merging their equities and bonds origination activities. Investment banking also includes mergers and acquisitions advice, covered at the end of this chapter.


pages: 371 words: 108,317

The Inevitable: Understanding the 12 Technological Forces That Will Shape Our Future by Kevin Kelly

A Declaration of the Independence of Cyberspace, Aaron Swartz, AI winter, Airbnb, Albert Einstein, Alvin Toffler, Amazon Web Services, augmented reality, bank run, barriers to entry, Baxter: Rethink Robotics, bitcoin, blockchain, book scanning, Brewster Kahle, Burning Man, cloud computing, commoditize, computer age, Computer Lib, connected car, crowdsourcing, dark matter, data science, deep learning, DeepMind, dematerialisation, Downton Abbey, driverless car, Edward Snowden, Elon Musk, Filter Bubble, Freestyle chess, Gabriella Coleman, game design, Geoffrey Hinton, Google Glasses, hive mind, Howard Rheingold, index card, indoor plumbing, industrial robot, Internet Archive, Internet of things, invention of movable type, invisible hand, Jaron Lanier, Jeff Bezos, job automation, John Markoff, John Perry Barlow, Kevin Kelly, Kickstarter, lifelogging, linked data, Lyft, M-Pesa, machine readable, machine translation, Marc Andreessen, Marshall McLuhan, Mary Meeker, means of production, megacity, Minecraft, Mitch Kapor, multi-sided market, natural language processing, Netflix Prize, Network effects, new economy, Nicholas Carr, off-the-grid, old-boy network, peer-to-peer, peer-to-peer lending, personalized medicine, placebo effect, planetary scale, postindustrial economy, Project Xanadu, recommendation engine, RFID, ride hailing / ride sharing, robo advisor, Rodney Brooks, self-driving car, sharing economy, Silicon Valley, slashdot, Snapchat, social graph, social web, software is eating the world, speech recognition, Stephen Hawking, Steven Levy, Ted Nelson, TED Talk, The future is already here, the long tail, the scientific method, transport as a service, two-sided market, Uber for X, uber lyft, value engineering, Watson beat the top human players on Jeopardy!, WeWork, Whole Earth Review, Yochai Benkler, yottabyte, zero-sum game

If text literacy meant being able to parse and manipulate texts, then the new media fluency means being able to parse and manipulate moving images with the same ease. But so far, these “reader” tools of visuality have not made their way to the masses. For example, if I wanted to visually compare recent bank failures with similar historical events by referring you to the bank run in the classic movie It’s a Wonderful Life, there is no easy way to point to that scene with precision. (Which of several sequences did I mean, and which part of them?) I can do what I just did and mention the movie title. I might be able to point to the minute mark for that scene (a new YouTube feature).


pages: 350 words: 103,270

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

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

Like the Cowardly Lion, the Scarecrow, and the Tin Man getting green spectacles from the Wizard of Oz, the depositors happily walk around thinking their cash is available whenever they want it. Woe betide any bank whose depositors take their green spectacles off. The need to keep the illusion intact (and to save the economy from bank runs) was the driver behind the invention of central banking and deposit insurance. But what happens if you dispense with banks, and central banks as well? What happens if an unregulated free market creates a parallel system that connects depositors with CDOs, subprime mortgage bonds, and a web of derivatives?


pages: 379 words: 108,129

An Optimist's Tour of the Future by Mark Stevenson

23andMe, Albert Einstein, Alvin Toffler, Andy Kessler, Apollo 11, augmented reality, bank run, Boston Dynamics, carbon credits, carbon footprint, carbon-based life, clean water, computer age, decarbonisation, double helix, Douglas Hofstadter, Dr. Strangelove, Elon Musk, flex fuel, Ford Model T, Future Shock, Great Leap Forward, Gregor Mendel, Gödel, Escher, Bach, Hans Moravec, Hans Rosling, Intergovernmental Panel on Climate Change (IPCC), Internet of things, invention of agriculture, Isaac Newton, Jeff Bezos, Kevin Kelly, Law of Accelerating Returns, Leonard Kleinrock, life extension, Louis Pasteur, low earth orbit, mutually assured destruction, Naomi Klein, Nick Bostrom, off grid, packet switching, peak oil, pre–internet, private spaceflight, radical life extension, Ray Kurzweil, Richard Feynman, Rodney Brooks, Scaled Composites, self-driving car, Silicon Valley, smart cities, social intelligence, SpaceShipOne, stem cell, Stephen Hawking, Steven Pinker, Stewart Brand, strong AI, synthetic biology, TED Talk, the scientific method, Virgin Galactic, Wall-E, X Prize

Klaus’s requirements amount to just 0.000025 per cent of the $787 billion the US government pulled out of the hat for its American Recovery and Reinvestment Act of 2009 – money for stimulating the economy out of the economic crisis. One quarter of one ten-thousandth of a per cent. It’s ironic that when it came to saving the financial system, governments around the world couldn’t move fast enough. Yet there is another platform all the banks run on. It’s called the atmosphere, and the social and financial implications of global warming will do more to hamper Wall Street than anything they’ve done to themselves. When, I wonder, did a human-friendly atmosphere not become an infrastructural investment? A back of a napkin calculation suggests we could build enough scrubbers to reclaim all the carbon we pump into the atmosphere each year (and start to reclaim the backlog) for the equivalent of a three per cent tax on car prices for the next ten years.


pages: 357 words: 110,017

Money: The Unauthorized Biography by Felix Martin

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

The discussion in which Wolf and Summers made these comments is available at: http://​ineteconomics.​org/​net/​video/​playlist/​conference/​bretton-​woods/​V. Summers’ response referred to here is his answer to the first question in the interview, starting at 6:04. 8. Ibid. Summers also mentioned the 1981 Nobel Laureate James Tobin as an important influence, as well as alluding to the microeconomic literature on bank runs. 9. Ibid., second question starting at 10:58. 10. Ibid. 11. It was the short-lived but highly influential economic historian Arnold Toynbee who seems to have coined the name in lectures that he delivered at Oxford in the late 1870s which were published after his death in 1883 as The Industrial Revolution. 12.


pages: 382 words: 105,166

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

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

One poet later wrote that double-entry bookkeeping was the secret to Dutch wealth: This was the fam’d and quick invention, which Made Venice, Genoa and Florence rich: The Low-Countries (in all senses such) By this Art now speaks high and mighty Dutch. By the mid-seventeenth century, Amsterdam’s burgomasters had founded the Wisselbank, which guaranteed currency for invesment. Adam Smith would later note that balanced accounts made the bank run smoothly. The Dutch Republic was also home to the world’s primary stock exchange. Dutch banks offered loans that could be directly invested in merchandise futures. With the proliferation of business to every level of Dutch society, there was a general consensus that double-entry accounting was necessary knowledge.


pages: 403 words: 110,492

Nomad Capitalist: How to Reclaim Your Freedom With Offshore Bank Accounts, Dual Citizenship, Foreign Companies, and Overseas Investments by Andrew Henderson

Affordable Care Act / Obamacare, Airbnb, airport security, Albert Einstein, Asian financial crisis, asset allocation, bank run, barriers to entry, birth tourism , bitcoin, blockchain, business process, call centre, capital controls, car-free, content marketing, cryptocurrency, currency risk, digital nomad, diversification, diversified portfolio, Donald Trump, Double Irish / Dutch Sandwich, Elon Musk, failed state, fiat currency, Fractional reserve banking, gentrification, intangible asset, land reform, low interest rates, medical malpractice, new economy, obamacare, offshore financial centre, passive income, peer-to-peer lending, Pepsi Challenge, place-making, risk tolerance, side hustle, Silicon Valley, Skype, too big to fail, white picket fence, work culture , working-age population

That is because most of those banks only keep one or two cents per dollar of your money on hand. Compare that to 20, 25, or even 30 cents per dollar in some offshore banks. Just because a bank is in a wealthy country does not mean it is safer. If you have ever wondered what would happen in a modern-day bank run, just look at Europe: banks there have limited their customers’ access to their money. And when banks went under, not even deposit insurance protected them in some cases. If the entire country is bankrupt, the government cannot very well guarantee your money anyway. Why not go with the best? Why not go with the strongest?


pages: 338 words: 104,684

The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy by Stephanie Kelton

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, Alan Greenspan, American Society of Civil Engineers: Report Card, Apollo 11, Asian financial crisis, bank run, Bernie Madoff, Bernie Sanders, blockchain, bond market vigilante , book value, Bretton Woods, business cycle, capital controls, carbon tax, central bank independence, collective bargaining, COVID-19, currency manipulation / currency intervention, currency peg, David Graeber, David Ricardo: comparative advantage, decarbonisation, deindustrialization, discrete time, Donald Trump, eurozone crisis, fiat currency, floating exchange rates, Food sovereignty, full employment, gentrification, Gini coefficient, global reserve currency, global supply chain, green new deal, high-speed rail, Hyman Minsky, income inequality, inflation targeting, Intergovernmental Panel on Climate Change (IPCC), investor state dispute settlement, Isaac Newton, Jeff Bezos, liquidity trap, low interest rates, Mahatma Gandhi, manufacturing employment, market bubble, Mason jar, Modern Monetary Theory, mortgage debt, Naomi Klein, National Debt Clock, new economy, New Urbanism, Nixon shock, Nixon triggered the end of the Bretton Woods system, obamacare, open economy, Paul Samuelson, Phillips curve, Ponzi scheme, Post-Keynesian economics, price anchoring, price stability, pushing on a string, quantitative easing, race to the bottom, reserve currency, Richard Florida, Ronald Reagan, San Francisco homelessness, shareholder value, Silicon Valley, Tax Reform Act of 1986, trade liberalization, urban planning, working-age population, Works Progress Administration, yield curve, zero-sum game

Each time a player rounds the board, they receive a $200 payment from the person who controls the currency. Because the players are merely users of the currency, they can and do go broke. The issuer, however, can never run out of money. In fact, the official rules12 of the game literally read: “The Bank never ‘goes broke.’ If the Bank runs out of money, the Banker may issue as much more money as may be needed by writing on any ordinary paper” (emphasis mine). I thought about this idea of writing on paper to make money when I took my own kids on a tour of the US Bureau of Engraving and Printing in Washington, DC. If you haven’t done it, I highly recommend it.


A Fever in the Heartland: The Ku Klux Klan's Plot to Take Over America, and the Woman Who Stopped Them by Timothy Egan

bank run, disinformation, fake news, Ford Model T, indoor plumbing, Scientific racism, traveling salesman, W. E. B. Du Bois

In the weeks that followed, more names were revealed—a prominent bank president, businessmen, civil servants. Chicago members of the Klan were listed under the headline who’s who in nightgowns. In a city where Catholics, Blacks, immigrants, and Jews combined were a majority of the population of three million, the revelations caused an uproar. Hundreds of families withdrew their money from the bank run by the Klansman. Citywide investigations followed, as did resignations. A week after publication, the city council voted to condemn the Klan and pledged to “rid the community of this organization.” It didn’t take long for many of the Who’s Who to ditch their nightgowns. And within a few months, the state passed a law making it illegal to wear a mask while parading in public.


pages: 367 words: 110,161

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

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

Central bankers, finance ministers, professors, and the most important market participants checked into Jackson Lake Lodge in late August 2007, passing the lobby’s huge picture windows where the Teton Range lined up at the horizon. Every evening, amid the “howls of coyotes and bugling of elk,” as Yale economics professor Robert Shiller recalled, regulators and economists tried to gauge just how bad the current housing slowdown was. It looked like a classic bank run and yet was worse, scarier. Was it just a correction? A bubble popping? Whose fault was it? Should the Fed do something? What? Part of the problem: the Fed could touch really only the banking system. But much of the current troubles were roiling things that were not banks. McCulley, sporting a “professional professor” look, his thick mustache halfway to walrus, his orderly brown hair graying in the front, adjusted his rimless glasses, cleared his throat, and began.


pages: 437 words: 115,594

The Great Surge: The Ascent of the Developing World by Steven Radelet

Admiral Zheng, agricultural Revolution, Asian financial crisis, bank run, Berlin Wall, biodiversity loss, Boeing 747, Branko Milanovic, business climate, business process, call centre, Capital in the Twenty-First Century by Thomas Piketty, clean water, colonial rule, creative destruction, demographic dividend, Deng Xiaoping, Dissolution of the Soviet Union, Doha Development Round, Erik Brynjolfsson, European colonialism, export processing zone, F. W. de Klerk, failed state, Francis Fukuyama: the end of history, Gini coefficient, global pandemic, global supply chain, Great Leap Forward, income inequality, income per capita, Intergovernmental Panel on Climate Change (IPCC), invention of the steam engine, James Watt: steam engine, John Snow's cholera map, Joseph Schumpeter, Kenneth Arrow, land reform, low interest rates, low skilled workers, M-Pesa, megacity, middle-income trap, Mikhail Gorbachev, Nelson Mandela, off grid, oil shock, out of africa, purchasing power parity, race to the bottom, randomized controlled trial, Robert Gordon, Robert Solow, Second Machine Age, secular stagnation, Shenzhen special economic zone , Sheryl Sandberg, Simon Kuznets, South China Sea, special economic zone, standardized shipping container, Steven Pinker, The Wealth of Nations by Adam Smith, Thomas Malthus, three-masted sailing ship, trade route, women in the workforce, working poor

Coral Davenport, “Philippines Pushes Developing Countries to Cut Their Emissions,” New York Times, December 8, 2014, www.nytimes.com/2014/12/09/world/americas/philippines-pushes-developing-countries-to-cut-their-emissions-.html. 7. Jane Perlez, “U.S. Opposing China’s Answer to World Bank,” New York Times, October 9, 2014, http://www.nytimes.com/2014/10/10/world/asia/chinas-plan-for-regional-development-bank-runs-into-us-opposition.html. 8. Nancy Birdsall, ed., The White House and the World: A Global Development Agenda for the Next U.S. President (Washington, DC: Center for Global Development, 2008), p. 28. See also Nancy Birdsall, Christian Meyer, and Alexis Sowa, “Global Markets, Global Citizens, and Global Governance in the 21st Century,” working paper 329, Center for Global Development, Washington, DC, September 2013, www.cgdev.org/publication/global-markets-global-citizens-and-global-governance-21st-century-working-paper-329-0. 9.


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

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

When there is a deficit, the “fixed-rate gap” is consistent with the assumption that the gap will be funded through liabilities for which the rate is unknown. This funding is then a variable-rate liability and is the bank’s risk, unless the rate has been locked-in beforehand. The same assumption applies when the banks run a cash surplus position, and the interest rate for any period in the future is unknown. The gap position at a given time bucket is sensitive to the interest rate that applies to that period. The gap is calculated for each discrete time bucket, so there is a net exposure for say, 0–1 month, 1–3 months, and so on.


pages: 395 words: 116,675

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

"World Economic Forum" Davos, adjacent possible, affirmative action, Affordable Care Act / Obamacare, Albert Einstein, Alfred Russel Wallace, AltaVista, altcoin, An Inconvenient Truth, anthropic principle, anti-communist, bank run, banking crisis, barriers to entry, bitcoin, blockchain, Boeing 747, Boris Johnson, British Empire, Broken windows theory, carbon tax, Columbian Exchange, computer age, Corn Laws, cosmological constant, cotton gin, 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, driverless car, Eben Moglen, Edward Glaeser, Edward Lorenz: Chaos theory, Edward Snowden, endogenous growth, epigenetics, Ethereum, ethereum blockchain, facts on the ground, fail fast, falling living standards, Ferguson, Missouri, financial deregulation, financial innovation, flying shuttle, Frederick Winslow Taylor, Geoffrey West, Santa Fe Institute, George Gilder, George Santayana, Glass-Steagall Act, Great Leap Forward, Greenspan put, Gregor Mendel, Gunnar Myrdal, Henri Poincaré, Higgs boson, hydraulic fracturing, imperial preference, income per capita, indoor plumbing, information security, interchangeable parts, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, Jane Jacobs, Japanese asset price bubble, Jeff Bezos, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kevin Kelly, Khan Academy, knowledge economy, land reform, Lao Tzu, long peace, low interest rates, Lyft, M-Pesa, Mahatma Gandhi, Mark Zuckerberg, means of production, meta-analysis, military-industrial complex, 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, precautionary principle, price mechanism, profit motive, RAND corporation, random walk, Ray Kurzweil, rent-seeking, reserve currency, Richard Feynman, rising living standards, road to serfdom, Robert Solow, Ronald Coase, Ronald Reagan, Satoshi Nakamoto, scientific management, Second Machine Age, sharing economy, smart contracts, South Sea Bubble, Steve Jobs, Steven Pinker, Stuart Kauffman, tacit knowledge, TED Talk, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, twin studies, uber lyft, women in the workforce

One high-profile failure, of the aptly named Ayr Bank in 1772, showed how the system of self-regulation worked. The Ayr Bank’s aggressive lending was distrusted by its rivals, so they had avoided entangling themselves with it. Instead the Ayr Bank borrowed from London banks, including the Bank of England. It went bust because of a series of bank runs starting in London, which took down more than twenty prominent banking houses. Because it had been avoided by the main Scottish banks, the Ayr Bank’s failure took only a few local Scottish banks with it. The main issuing banks acted as lenders of last resort to smaller banks during the crisis, which not only saved them but gave the whole system future credibility.


pages: 403 words: 111,119

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

"Friedman doctrine" OR "shareholder theory", 3D printing, Alan Greenspan, Alvin Toffler, Anthropocene, Asian financial crisis, bank run, basic income, battle of ideas, behavioural economics, benefit corporation, Berlin Wall, biodiversity loss, bitcoin, blockchain, Branko Milanovic, Bretton Woods, Buckminster Fuller, business cycle, call centre, Capital in the Twenty-First Century by Thomas Piketty, carbon tax, Cass Sunstein, choice architecture, circular economy, clean water, cognitive bias, collapse of Lehman Brothers, complexity theory, creative destruction, crowdsourcing, cryptocurrency, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, degrowth, dematerialisation, disruptive innovation, Douglas Engelbart, Douglas Engelbart, Easter island, 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, Future Shock, Garrett Hardin, Glass-Steagall Act, 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, it is difficult to get a man to understand something, when his salary depends on his not understanding it, 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 interest rates, low skilled workers, M-Pesa, Mahatma Gandhi, market fundamentalism, Martin Wolf, means of production, megacity, Minsky moment, mobile money, Money creation, Mont Pelerin Society, Myron Scholes, neoliberal agenda, Network effects, Occupy movement, ocean acidification, 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, retail therapy, Richard Thaler, Robert Solow, Ronald Reagan, 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, systems thinking, TED Talk, 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

Page numbers in italics denote illustrations A Aalborg, Denmark, 290 Abbott, Anthony ‘Tony’, 31 ABCD group, 148 Abramovitz, Moses, 262 absolute decoupling, 260–61 Acemoglu, Daron, 86 advertising, 58, 106–7, 112, 281 Agbodjinou, Sénamé, 231 agriculture, 5, 46, 72–3, 148, 155, 178, 181, 183 Alaska, 9 Alaska Permanent Fund, 194 Alperovitz, Gar, 177 alternative enterprise designs, 190–91 altruism, 100, 104 Amazon, 192, 196, 276 Amazon rainforest, 105–6, 253 American Economic Association, 3 American Enterprise Institute, 67 American Tobacco Corporation, 107 Andes, 54 animal spirits, 110 Anthropocene epoch, 48, 253 anthropocentrism, 115 Apertuso, 230 Apple, 85, 192 Archer Daniels Midland (ADM), 148 Arendt, Hannah, 115–16 Argentina, 55, 274 Aristotle, 32, 272 Arrow, Kenneth, 134 Articles of Association and Memoranda, 233 Arusha, Tanzania, 202 Asia Wage Floor Alliance, 177 Asian financial crisis (1997), 90 Asknature.org, 232 Athens, 57 austerity, 163 Australia, 31, 103, 177, 180, 211, 224–6, 255, 260 Austria, 263, 274 availability bias, 112 AXIOM, 230 Axtell, Robert, 150 Ayres, Robert, 263 B B Corp, 241 Babylon, 13 Baker, Josephine, 157 balancing feedback loops, 138–41, 155, 271 Ballmer, Steve, 231 Bangla Pesa, 185–6, 293 Bangladesh, 10, 226 Bank for International Settlements, 256 Bank of America, 149 Bank of England, 145, 147, 256 banking, see under finance Barnes, Peter, 201 Barroso, José Manuel, 41 Bartlett, Albert Allen ‘Al’, 247 basic income, 177, 194, 199–201 basic personal values, 107–9 Basle, Switzerland, 80 Bauwens, Michel, 197 Beckerman, Wilfred, 258 Beckham, David, 171 Beech-Nut Packing Company, 107 behavioural economics, 11, 111–14 behavioural psychology, 103, 128 Beinhocker, Eric, 158 Belgium, 236, 252 Bentham, Jeremy, 98 Benyus, Janine, 116, 218, 223–4, 227, 232, 237, 241 Berger, John, 12, 281 Berlin Wall, 141 Bermuda, 277 Bernanke, Ben, 146 Bernays, Edward, 107, 112, 281–3 Bhopal gas disaster (1984), 9 Bible, 19, 114, 151 Big Bang (1986), 87 billionaires, 171, 200, 289 biodiversity, 10, 46, 48–9, 52, 85, 115, 155, 208, 210, 242, 299 as common pool resource, 201 and land conversion, 49 and inequality, 172 and reforesting, 50 biomass, 73, 118, 210, 212, 221 biomimicry, 116, 218, 227, 229 bioplastic, 224, 293 Birmingham, West Midlands, 10 Black, Fischer, 100–101 Blair, Anthony ‘Tony’, 171 Blockchain, 187, 192 blood donation, 104, 118 Body Shop, The, 232–4 Bogotá, Colombia, 119 Bolivia, 54 Boston, Massachusetts, 3 Bowen, Alex, 261 Bowles, Sam, 104 Box, George, 22 Boyce, James, 209 Brasselberg, Jacob, 187 Brazil, 124, 226, 281, 290 bread riots, 89 Brisbane, Australia, 31 Brown, Gordon, 146 Brynjolfsson, Erik, 193, 194, 258 Buddhism, 54 buen vivir, 54 Bullitt Center, Seattle, 217 Bunge, 148 Burkina Faso, 89 Burmark, Lynell, 13 business, 36, 43, 68, 88–9 automation, 191–5, 237, 258, 278 boom and bust, 246 and circular economy, 212, 215–19, 220, 224, 227–30, 232–4, 292 and complementary currencies, 184–5, 292 and core economy, 80 and creative destruction, 142 and feedback loops, 148 and finance, 183, 184 and green growth, 261, 265, 269 and households, 63, 68 living metrics, 241 and market, 68, 88 micro-businesses, 9 and neoliberalism, 67, 87 ownership, 190–91 and political funding, 91–2, 171–2 and taxation, 23, 276–7 workers’ rights, 88, 91, 269 butterfly economy, 220–42 C C–ROADS (Climate Rapid Overview and Decision Support), 153 C40 network, 280 calculating man, 98 California, United States, 213, 224, 293 Cambodia, 254 Cameron, David, 41 Canada, 196, 255, 260, 281, 282 cancer, 124, 159, 196 Capital Institute, 236 carbon emissions, 49–50, 59, 75 and decoupling, 260, 266 and forests, 50, 52 and inequality, 58 reduction of, 184, 201, 213, 216–18, 223–7, 239–41, 260, 266 stock–flow dynamics, 152–4 taxation, 201, 213 Cargill, 148 Carney, Mark, 256 Caterpillar, 228 Catholic Church, 15, 19 Cato Institute, 67 Celts, 54 central banks, 6, 87, 145, 146, 147, 183, 184, 256 Chang, Ha-Joon, 82, 86, 90 Chaplin, Charlie, 157 Chiapas, Mexico, 121–2 Chicago Board Options Exchange (CBOE), 100–101 Chicago School, 34, 99 Chile, 7, 42 China, 1, 7, 48, 154, 289–90 automation, 193 billionaires, 200, 289 greenhouse gas emissions, 153 inequality, 164 Lake Erhai doughnut analysis, 56 open-source design, 196 poverty reduction, 151, 198 renewable energy, 239 tiered pricing, 213 Chinese Development Bank, 239 chrematistics, 32, 273 Christianity, 15, 19, 114, 151 cigarettes, 107, 124 circular economy, 220–42, 257 Circular Flow diagram, 19–20, 28, 62–7, 64, 70, 78, 87, 91, 92, 93, 262 Citigroup, 149 Citizen Reaction Study, 102 civil rights movement, 77 Cleveland, Ohio, 190 climate change, 1, 3, 5, 29, 41, 45–53, 63, 74, 75–6, 91, 141, 144, 201 circular economy, 239, 241–2 dynamics of, 152–5 and G20, 31 and GDP growth, 255, 256, 260, 280 and heuristics, 114 and human rights, 10 and values, 126 climate positive cities, 239 closed systems, 74 coffee, 221 cognitive bias, 112–14 Colander, David, 137 Colombia, 119 common-pool resources, 82–3, 181, 201–2 commons, 69, 82–4, 287 collaborative, 78, 83, 191, 195, 196, 264, 292 cultural, 83 digital, 82, 83, 192, 197, 281 and distribution, 164, 180, 181–2, 205, 267 Embedded Economy, 71, 73, 77–8, 82–4, 85, 92 knowledge, 197, 201–2, 204, 229, 231, 292 commons and money creation, see complementary currencies natural, 82, 83, 180, 181–2, 201, 265 and regeneration, 229, 242, 267, 292 and state, 85, 93, 197, 237 and systems, 160 tragedy of, 28, 62, 69, 82, 181 triumph of, 83 and values, 106, 108 Commons Trusts, 201 complementary currencies, 158, 182–8, 236, 292 complex systems, 28, 129–62 complexity science, 136–7 Consumer Reaction Study, 102 consumerism, 58, 102, 121, 280–84 cooking, 45, 80, 186 Coote, Anna, 278 Copenhagen, Denmark, 124 Copernicus, Nicolaus, 14–15 copyright, 195, 197, 204 core economy, 79–80 Corporate To Do List, 215–19 Costa Rica, 172 Council of Economic Advisers, US, 6, 37 Cox, Jo, 117 cradle to cradle, 224 creative destruction, 142 Cree, 282 Crompton, Tom, 125–6 cross-border flows, 89–90 crowdsourcing, 204 cuckoos, 32, 35, 36, 38, 40, 54, 60, 159, 244, 256, 271 currencies, 182–8, 236, 274, 292 D da Vinci, Leonardo, 13, 94–5 Dallas, Texas, 120 Daly, Herman, 74, 143, 271 Danish Nudging Network, 124 Darwin, Charles, 14 Debreu, Gerard, 134 debt, 37, 146–7, 172–3, 182–5, 247, 255, 269 decoupling, 193, 210, 258–62, 273 defeat device software, 216 deforestation, 49–50, 74, 208, 210 degenerative linear economy, 211–19, 222–3, 237 degrowth, 244 DeMartino, George, 161 democracy, 77, 171–2, 258 demurrage, 274 Denmark, 180, 275, 290 deregulation, 82, 87, 269 derivatives, 100–101, 149 Devas, Charles Stanton, 97 Dey, Suchitra, 178 Diamond, Jared, 154 diarrhoea, 5 differential calculus, 131, 132 digital revolution, 191–2, 264 diversify–select–amplify, 158 double spiral, 54 Doughnut model, 10–11, 11, 23–5, 44, 51 and aspiration, 58–9, 280–84 big picture, 28, 42, 61–93 distribution, 29, 52, 57, 58, 76, 93, 158, 163–205 ecological ceiling, 10, 11, 44, 45, 46, 49, 51, 218, 254, 295, 298 goal, 25–8, 31–60 and governance, 57, 59 growth agnosticism, 29–30, 243–85 human nature, 28–9, 94–128 and population, 57–8 regeneration, 29, 158, 206–42 social foundation, 10, 11, 44, 45, 49, 51, 58, 77, 174, 200, 254, 295–6 systems, 28, 129–62 and technology, 57, 59 Douglas, Margaret, 78–9 Dreyfus, Louis, 148 ‘Dumb and Dumber in Macroeconomics’ (Solow), 135 Durban, South Africa, 214 E Earning by Learning, 120 Earth-system science, 44–53, 115, 216, 288, 298 Easter Island, 154 Easterlin, Richard, 265–6 eBay, 105, 192 eco-literacy, 115 ecological ceiling, 10, 11, 44, 45, 46, 49, 51, 218, 254, 295, 298 Ecological Performance Standards, 241 Econ 101 course, 8, 77 Economics (Lewis), 114 Economics (Samuelson), 19–20, 63–7, 70, 74, 78, 86, 91, 92, 93, 262 Economy for the Common Good, 241 ecosystem services, 7, 116, 269 Ecuador, 54 education, 9, 43, 45, 50–52, 85, 169–70, 176, 200, 249, 279 economic, 8, 11, 18, 22, 24, 36, 287–93 environmental, 115, 239–40 girls’, 57, 124, 178, 198 online, 83, 197, 264, 290 pricing, 118–19 efficient market hypothesis, 28, 62, 68, 87 Egypt, 48, 89 Eisenstein, Charles, 116 electricity, 9, 45, 236, 240 and Bangla Pesa, 186 cars, 231 Ethereum, 187–8 and MONIAC, 75, 262 pricing, 118, 213 see also renewable energy Elizabeth II, Queen of the United Kingdom, 145 Ellen MacArthur Foundation, 220 Embedded Economy, 71–93, 263 business, 88–9 commons, 82–4 Earth, 72–6 economy, 77–8 finance, 86–8 household, 78–81 market, 81–2 power, 91–92 society, 76–7 state, 84–6 trade, 89–90 employment, 36, 37, 51, 142, 176 automation, 191–5, 237, 258, 278 labour ownership, 188–91 workers’ rights, 88, 90, 269 Empty World, 74 Engels, Friedrich, 88 environment and circular economy, 220–42, 257 conservation, 121–2 and degenerative linear economy, 211–19, 222–3 degradation, 5, 9, 10, 29, 44–53, 74, 154, 172, 196, 206–42 education on, 115, 239–40 externalities, 152 fair share, 216–17 and finance, 234–7 generosity, 218–19, 223–7 green growth, 41, 210, 243–85 nudging, 123–5 taxation and quotas, 213–14, 215 zero impact, 217–18, 238, 241 Environmental Dashboard, 240–41 environmental economics, 7, 11, 114–16 Environmental Kuznets Curve, 207–11, 241 environmental space, 54 Epstein, Joshua, 150 equilibrium theory, 134–62 Ethereum, 187–8 ethics, 160–62 Ethiopia, 9, 226, 254 Etsy, 105 Euclid, 13, 15 European Central Bank, 145, 275 European Commission, 41 European Union (EU), 92, 153, 210, 222, 255, 258 Evergreen Cooperatives, 190 Evergreen Direct Investing (EDI), 273 exogenous shocks, 141 exponential growth, 39, 246–85 externalities, 143, 152, 213 Exxon Valdez oil spill (1989), 9 F Facebook, 192 fair share, 216–17 Fama, Eugene, 68, 87 fascism, 234, 277 Federal Reserve, US, 87, 145, 146, 271, 282 feedback loops, 138–41, 143, 148, 155, 250, 271 feminist economics, 11, 78–81, 160 Ferguson, Thomas, 91–2 finance animal spirits, 110 bank runs, 139 Black–Scholes model, 100–101 boom and bust, 28–9, 110, 144–7 and Circular Flow, 63–4, 87 and complex systems, 134, 138, 139, 140, 141, 145–7 cross-border flows, 89 deregulation, 87 derivatives, 100–101, 149 and distribution, 169, 170, 173, 182–4, 198–9, 201 and efficient market hypothesis, 63, 68 and Embedded Economy, 71, 86–8 and financial-instability hypothesis, 87, 146 and GDP growth, 38 and media, 7–8 mobile banking, 199–200 and money creation, 87, 182–5 and regeneration, 227, 229, 234–7 in service to life, 159, 234–7 stakeholder finance, 190 and sustainability, 216, 235–6, 239 financial crisis (2008), 1–4, 5, 40, 63, 86, 141, 144, 278, 290 and efficient market hypothesis, 87 and equilibrium theory, 134, 145 and financial-instability hypothesis, 87 and inequality, 90, 170, 172, 175 and money creation, 182 and worker’s rights, 278 financial flows, 89 Financial Times, 183, 266, 289 financial-instability hypothesis, 87, 146 First Green Bank, 236 First World War (1914–18), 166, 170 Fisher, Irving, 183 fluid values, 102, 106–9 food, 3, 43, 45, 50, 54, 58, 59, 89, 198 food banks, 165 food price crisis (2007–8), 89, 90, 180 Ford, 277–8 foreign direct investment, 89 forest conservation, 121–2 fossil fuels, 59, 73, 75, 92, 212, 260, 263 Foundations of Economic Analysis (Samuelson), 17–18 Foxconn, 193 framing, 22–3 France, 43, 165, 196, 238, 254, 256, 281, 290 Frank, Robert, 100 free market, 33, 37, 67, 68, 70, 81–2, 86, 90 free open-source hardware (FOSH), 196–7 free open-source software (FOSS), 196 free trade, 70, 90 Freeman, Ralph, 18–19 freshwater cycle, 48–9 Freud, Sigmund, 107, 281 Friedman, Benjamin, 258 Friedman, Milton, 34, 62, 66–9, 84–5, 88, 99, 183, 232 Friends of the Earth, 54 Full World, 75 Fuller, Buckminster, 4 Fullerton, John, 234–6, 273 G G20, 31, 56, 276, 279–80 G77, 55 Gal, Orit, 141 Gandhi, Mohandas, 42, 293 Gangnam Style, 145 Gardens of Democracy, The (Liu & Hanauer), 158 gender equality, 45, 51–2, 57, 78–9, 85, 88, 118–19, 124, 171, 198 generosity, 218–19, 223–9 geometry, 13, 15 George, Henry, 149, 179 Georgescu-Roegen, Nicholas, 252 geothermal energy, 221 Gerhardt, Sue, 283 Germany, 2, 41, 100, 118, 165, 189, 211, 213, 254, 256, 260, 274 Gessel, Silvio, 274 Ghent, Belgium, 236 Gift Relationship, The (Titmuss), 118–19 Gigerenzer, Gerd, 112–14 Gintis, Herb, 104 GiveDirectly, 200 Glass–Steagall Act (1933), 87 Glennon, Roger, 214 Global Alliance for Tax Justice, 277 global material footprints, 210–11 Global Village Construction Set, 196 globalisation, 89 Goerner, Sally, 175–6 Goffmann, Erving, 22 Going for Growth, 255 golden rule, 91 Goldman Sachs, 149, 170 Gómez-Baggethun, Erik, 122 Goodall, Chris, 211 Goodwin, Neva, 79 Goody, Jade, 124 Google, 192 Gore, Albert ‘Al’, 172 Gorgons, 244, 256, 257, 266 graffiti, 15, 25, 287 Great Acceleration, 46, 253–4 Great Depression (1929–39), 37, 70, 170, 173, 183, 275, 277, 278 Great Moderation, 146 Greece, Ancient, 4, 13, 32, 48, 54, 56–7, 160, 244 green growth, 41, 210, 243–85 Greenham, Tony, 185 greenhouse gas emissions, 31, 46, 50, 75–6, 141, 152–4 and decoupling, 260, 266 and Environmental Kuznets Curve, 208, 210 and forests, 50, 52 and G20, 31 and inequality, 58 reduction of, 184, 201–2, 213, 216–18, 223–7, 239–41, 256, 259–60, 266, 298 stock–flow dynamics, 152–4 and taxation, 201, 213 Greenland, 141, 154 Greenpeace, 9 Greenspan, Alan, 87 Greenwich, London, 290 Grenoble, France, 281 Griffiths, Brian, 170 gross domestic product (GDP), 25, 31–2, 35–43, 57, 60, 84, 164 as cuckoo, 32, 35, 36, 38, 40, 54, 60, 159, 244, 256, 271 and Environmental Kuznets Curve, 207–11 and exponential growth, 39, 53, 246–85 and growth agnosticism, 29–30, 240, 243–85 and inequality, 173 and Kuznets Curve, 167, 173, 188–9 gross national product (GNP), 36–40 Gross World Product, 248 Grossman, Gene, 207–8, 210 ‘grow now, clean up later’, 207 Guatemala, 196 H Haifa, Israel, 120 Haldane, Andrew, 146 Han Dynasty, 154 Hanauer, Nick, 158 Hansen, Pelle, 124 Happy Planet Index, 280 Hardin, Garrett, 69, 83, 181 Harvard University, 2, 271, 290 von Hayek, Friedrich, 7–8, 62, 66, 67, 143, 156, 158 healthcare, 43, 50, 57, 85, 123, 125, 170, 176, 200, 269, 279 Heilbroner, Robert, 53 Henry VIII, King of England and Ireland, 180 Hepburn, Cameron, 261 Herbert Simon, 111 heuristics, 113–14, 118, 123 high-income countries growth, 30, 244–5, 254–72, 282 inequality, 165, 168, 169, 171 labour, 177, 188–9, 278 overseas development assistance (ODA), 198–9 resource intensive lifestyles, 46, 210–11 trade, 90 Hippocrates, 160 History of Economic Analysis (Schumpeter), 21 HIV/AIDS, 123 Holocene epoch, 46–8, 75, 115, 253 Homo economicus, 94–103, 109, 127–8 Homo sapiens, 38, 104, 130 Hong Kong, 180 household, 78 housing, 45, 59, 176, 182–3, 269 Howe, Geoffrey, 67 Hudson, Michael, 183 Human Development Index, 9, 279 human nature, 28 human rights, 10, 25, 45, 49, 50, 95, 214, 233 humanistic economics, 42 hydropower, 118, 260, 263 I Illinois, United States, 179–80 Imago Mundi, 13 immigration, 82, 199, 236, 266 In Defense of Economic Growth (Beckerman), 258 Inclusive Wealth Index, 280 income, 51, 79–80, 82, 88, 176–8, 188–91, 194, 199–201 India, 2, 9, 10, 42, 124, 164, 178, 196, 206–7, 242, 290 Indonesia, 90, 105–6, 164, 168, 200 Indus Valley civilisation, 48 inequality, 1, 5, 25, 41, 63, 81, 88, 91, 148–52, 209 and consumerism, 111 and democracy, 171 and digital revolution, 191–5 and distribution, 163–205 and environmental degradation, 172 and GDP growth, 173 and greenhouse gas emissions, 58 and intellectual property, 195–8 and Kuznets Curve, 29, 166–70, 173–4 and labour ownership, 188–91 and land ownership, 178–82 and money creation, 182–8 and social welfare, 171 Success to the Successful, 148, 149, 151, 166 inflation, 36, 248, 256, 275 insect pollination services, 7 Institute of Economic Affairs, 67 institutional economics, 11 intellectual property rights, 195–8, 204 interest, 36, 177, 182, 184, 275–6 Intergovernmental Panel on Climate Change, 25 International Monetary Fund (IMF), 170, 172, 173, 183, 255, 258, 271 Internet, 83–4, 89, 105, 192, 202, 264 Ireland, 277 Iroquois Onondaga Nation, 116 Israel, 100, 103, 120 Italy, 165, 196, 254 J Jackson, Tim, 58 Jakubowski, Marcin, 196 Jalisco, Mexico, 217 Japan, 168, 180, 211, 222, 254, 256, 263, 275 Jevons, William Stanley, 16, 97–8, 131, 132, 137, 142 John Lewis Partnership, 190 Johnson, Lyndon Baines, 37 Johnson, Mark, 38 Johnson, Todd, 191 JPMorgan Chase, 149, 234 K Kahneman, Daniel, 111 Kamkwamba, William, 202, 204 Kasser, Tim, 125–6 Keen, Steve, 146, 147 Kelly, Marjorie, 190–91, 233 Kennedy, John Fitzgerald, 37, 250 Kennedy, Paul, 279 Kenya, 118, 123, 180, 185–6, 199–200, 226, 292 Keynes, John Maynard, 7–8, 22, 66, 69, 134, 184, 251, 277–8, 284, 288 Kick It Over movement, 3, 289 Kingston, London, 290 Knight, Frank, 66, 99 knowledge commons, 202–4, 229, 292 Kokstad, South Africa, 56 Kondratieff waves, 246 Korzybski, Alfred, 22 Krueger, Alan, 207–8, 210 Kuhn, Thomas, 22 Kumhof, Michael, 172 Kuwait, 255 Kuznets, Simon, 29, 36, 39–40, 166–70, 173, 174, 175, 204, 207 KwaZulu Natal, South Africa, 56 L labour ownership, 188–91 Lake Erhai, Yunnan, 56 Lakoff, George, 23, 38, 276 Lamelara, Indonesia, 105–6 land conversion, 49, 52, 299 land ownership, 178–82 land-value tax, 73, 149, 180 Landesa, 178 Landlord’s Game, The, 149 law of demand, 16 laws of motion, 13, 16–17, 34, 129, 131 Lehman Brothers, 141 Leopold, Aldo, 115 Lesotho, 118, 199 leverage points, 159 Lewis, Fay, 178 Lewis, Justin, 102 Lewis, William Arthur, 114, 167 Lietaer, Bernard, 175, 236 Limits to Growth, 40, 154, 258 Linux, 231 Liu, Eric, 158 living metrics, 240–42 living purpose, 233–4 Lomé, Togo, 231 London School of Economics (LSE), 2, 34, 65, 290 London Underground, 12 loss aversion, 112 low-income countries, 90, 164–5, 168, 173, 180, 199, 201, 209, 226, 254, 259 Lucas, Robert, 171 Lula da Silva, Luiz Inácio, 124 Luxembourg, 277 Lyle, John Tillman, 214 Lyons, Oren, 116 M M–PESA, 199–200 MacDonald, Tim, 273 Machiguenga, 105–6 MacKenzie, Donald, 101 macroeconomics, 36, 62–6, 76, 80, 134–5, 145, 147, 150, 244, 280 Magie, Elizabeth, 149, 153 Malala effect, 124 malaria, 5 Malawi, 118, 202, 204 Malaysia, 168 Mali, Taylor, 243 Malthus, Thomas, 252 Mamsera Rural Cooperative, 190 Manhattan, New York, 9, 41 Mani, Muthukumara, 206 Manitoba, 282 Mankiw, Gregory, 2, 34 Mannheim, Karl, 22 Maoris, 54 market, 81–2 and business, 88 circular flow, 64 and commons, 83, 93, 181, 200–201 efficiency of, 28, 62, 68, 87, 148, 181 and equilibrium theory, 131–5, 137, 143–7, 155, 156 free market, 33, 37, 67–70, 90, 208 and households, 63, 69, 78, 79 and maxi-max rule, 161 and pricing, 117–23, 131, 160 and rational economic man, 96, 100–101, 103, 104 and reciprocity, 105, 106 reflexivity of, 144–7 and society, 69–70 and state, 84–6, 200, 281 Marshall, Alfred, 17, 98, 133, 165, 253, 282 Marx, Karl, 88, 142, 165, 272 Massachusetts Institute of Technology (MIT), 17–20, 152–5 massive open online courses (MOOCs), 290 Matthew Effect, 151 Max-Neef, Manfred, 42 maxi-max rule, 161 maximum wage, 177 Maya civilisation, 48, 154 Mazzucato, Mariana, 85, 195, 238 McAfee, Andrew, 194, 258 McDonough, William, 217 Meadows, Donella, 40, 141, 159, 271, 292 Medusa, 244, 257, 266 Merkel, Angela, 41 Messerli, Elspeth, 187 Metaphors We Live By (Lakoff & Johnson), 38 Mexico, 121–2, 217 Michaels, Flora S., 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: 397 words: 112,034

What's Next?: Unconventional Wisdom on the Future of the World Economy by David Hale, Lyric Hughes Hale

"World Economic Forum" Davos, affirmative action, Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, behavioural economics, Berlin Wall, biodiversity loss, Black Swan, Bretton Woods, business cycle, capital controls, carbon credits, carbon tax, Cass Sunstein, central bank independence, classic study, cognitive bias, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate social responsibility, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, currency risk, Daniel Kahneman / Amos Tversky, debt deflation, declining real wages, deindustrialization, diversification, energy security, Erik Brynjolfsson, Fall of the Berlin Wall, financial engineering, financial innovation, floating exchange rates, foreign exchange controls, full employment, Gini coefficient, Glass-Steagall Act, global macro, global reserve currency, global village, high net worth, high-speed rail, Home mortgage interest deduction, housing crisis, index fund, inflation targeting, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), inverted yield curve, invisible hand, Just-in-time delivery, Kenneth Rogoff, Long Term Capital Management, low interest rates, Mahatma Gandhi, Martin Wolf, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, military-industrial complex, Money creation, money market fund, money: store of value / unit of account / medium of exchange, mortgage tax deduction, Network effects, new economy, Nicholas Carr, oil shale / tar sands, oil shock, open economy, passive investing, payday loans, peak oil, Ponzi scheme, post-oil, precautionary principle, price stability, private sector deleveraging, proprietary trading, purchasing power parity, quantitative easing, race to the bottom, regulatory arbitrage, rent-seeking, reserve currency, Richard Thaler, risk/return, Robert Shiller, Ronald Reagan, Savings and loan crisis, sovereign wealth fund, special drawing rights, subprime mortgage crisis, technology bubble, The Great Moderation, Thomas Kuhn: the structure of scientific revolutions, Tobin tax, too big to fail, total factor productivity, trade liberalization, Tragedy of the Commons, Washington Consensus, Westphalian system, WikiLeaks, women in the workforce, yield curve

The temporary arrangements that were cobbled together for Greece in May 2010 were replaced with a permanent mechanism of collective responsibility for European sovereign and bank debts: In other words, the EU must take a decisive step towards fiscal federalism. This was always the main condition for a credible single currency. 2. No burden-sharing for any senior bank creditors, so as to avoid triggering Lehman-style bank runs across the eurozone: According to the news reports and briefings from Brussels and Dublin, these seemed to have been confirmed in the Irish bailout. But the language of the Irish program was rather ambiguous, and contained ominous warnings for owners of bank bonds. 3. No haircuts or burden-sharing on any sovereign debts currently outstanding: This seemed to have been promised by only applying the proposed Collective Action Clauses (CACs) to new debts that are issued after mid-2013. 4.


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Free to Choose: A Personal Statement by Milton Friedman, Rose D. Friedman

affirmative action, agricultural Revolution, air freight, back-to-the-land, bank run, banking crisis, business cycle, Corn Laws, foreign exchange controls, Fractional reserve banking, full employment, German hyperinflation, invisible hand, means of production, minimum wage unemployment, oil shale / tar sands, oil shock, price stability, Ralph Nader, RAND corporation, rent control, road to serfdom, Sam Peltzman, school vouchers, Simon Kuznets, The Wealth of Nations by Adam Smith, union organizing, Unsafe at Any Speed, Upton Sinclair, urban renewal, War on Poverty, working poor, Works Progress Administration

However, if everyone tries to get cash at once, the situation is very different—a panic is likely to occur, just as it does when someone cries "fire" in a crowded theater and everyone rushes to get out. One bank alone can meet a run by borrowing from other banks, or by asking its borrowers to repay their loans. The borrowers may be able to repay their loans by withdrawing cash from other banks. But if a bank run spreads widely, all banks together cannot meet the run in this way. There simply is not enough currency in bank vaults to satisfy the demands of all depositors. Moreover, any attempt to meet a widespread run by drawing down vault cash—unless it succeeds promptly in restoring confidence and ends the run so that the cash is redeposited—enforces a much larger reduction in deposits.


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

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

Banks take in deposits (which are liabilities of the bank) and make loans (which are its assets), but they also hold capital, which is the safety buffer that investors put in. If loans go bad this capital serves as a shock absorber: It is the investor capital, not the deposits, that take the hit (though if more and more loans go bad and the capital is exhausted, then the bank runs into real trouble, as happened to banks in the latest financial crisis). Prudent bankers will restrict their loans up to a multiple of, say, ten times the capital buffer. Capital is far more valuable to bankers than deposits: The more capital you have, the more you may multiply your balance sheet.


pages: 457 words: 125,329

Value of Everything: An Antidote to Chaos The by Mariana Mazzucato

"Friedman doctrine" OR "shareholder theory", activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Airbnb, Alan Greenspan, bank run, banks create money, Basel III, behavioural economics, Berlin Wall, Big bang: deregulation of the City of London, bonus culture, Bretton Woods, business cycle, butterfly effect, buy and hold, Buy land – they’re not making it any more, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carbon tax, Carmen Reinhart, carried interest, clean tech, Corn Laws, corporate governance, corporate social responsibility, creative destruction, Credit Default Swap, David Ricardo: comparative advantage, debt deflation, European colonialism, Evgeny Morozov, fear of failure, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, full employment, G4S, George Akerlof, Glass-Steagall Act, Google Hangouts, Growth in a Time of Debt, high net worth, Hyman Minsky, income inequality, independent contractor, index fund, informal economy, interest rate derivative, Internet of things, invisible hand, John Bogle, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labour market flexibility, laissez-faire capitalism, light touch regulation, liquidity trap, London Interbank Offered Rate, low interest rates, margin call, Mark Zuckerberg, market bubble, means of production, military-industrial complex, Minsky moment, Money creation, money market fund, negative equity, Network effects, new economy, Northern Rock, obamacare, offshore financial centre, Pareto efficiency, patent troll, Paul Samuelson, peer-to-peer lending, Peter Thiel, Post-Keynesian economics, profit maximization, proprietary trading, quantitative easing, quantitative trading / quantitative finance, QWERTY keyboard, rent control, rent-seeking, Robert Solow, Sand Hill Road, shareholder value, sharing economy, short selling, Silicon Valley, Simon Kuznets, smart meter, Social Responsibility of Business Is to Increase Its Profits, software patent, Solyndra, stem cell, Steve Jobs, The Great Moderation, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, too big to fail, trade route, transaction costs, two and twenty, two-sided market, very high income, Vilfredo Pareto, wealth creators, Works Progress Administration, you are the product, zero-sum game

Banking, it is argued, provides three main ‘services': ‘maturity transformation' (the conversion of short term deposits into mortgages and business loans); liquidity (the instant availability of cash through a short-term loan or overdraft for businesses and households that need to pay for something); and, perhaps most importantly, credit assessment (vetting loan applications to decide who is creditworthy and what the terms of the loan should be). As well as channelling funds from lenders to borrowers, banks run the various payments systems linking buyers to sellers. These activities, especially the transformation of short-term deposits into long-term loans and the guarantee of liquidity to customers with overdrafts, also mean a transfer of risk to banks from other private-sector firms. This bundle of services collectively constitutes ‘financial intermediation'.


Super Thinking: The Big Book of Mental Models by Gabriel Weinberg, Lauren McCann

Abraham Maslow, Abraham Wald, affirmative action, Affordable Care Act / Obamacare, Airbnb, Albert Einstein, anti-pattern, Anton Chekhov, Apollo 13, Apple Newton, autonomous vehicles, bank run, barriers to entry, Bayesian statistics, Bernie Madoff, Bernie Sanders, Black Swan, Broken windows theory, business process, butterfly effect, Cal Newport, Clayton Christensen, cognitive dissonance, commoditize, correlation does not imply causation, crowdsourcing, Daniel Kahneman / Amos Tversky, dark pattern, David Attenborough, delayed gratification, deliberate practice, discounted cash flows, disruptive innovation, Donald Trump, Douglas Hofstadter, Dunning–Kruger effect, Edward Lorenz: Chaos theory, Edward Snowden, effective altruism, Elon Musk, en.wikipedia.org, experimental subject, fake news, fear of failure, feminist movement, Filter Bubble, framing effect, friendly fire, fundamental attribution error, Goodhart's law, Gödel, Escher, Bach, heat death of the universe, hindsight bias, housing crisis, if you see hoof prints, think horses—not zebras, Ignaz Semmelweis: hand washing, illegal immigration, imposter syndrome, incognito mode, income inequality, information asymmetry, Isaac Newton, Jeff Bezos, John Nash: game theory, karōshi / gwarosa / guolaosi, lateral thinking, loss aversion, Louis Pasteur, LuLaRoe, Lyft, mail merge, Mark Zuckerberg, meta-analysis, Metcalfe’s law, Milgram experiment, minimum viable product, moral hazard, mutually assured destruction, Nash equilibrium, Network effects, nocebo, nuclear winter, offshore financial centre, p-value, Paradox of Choice, Parkinson's law, Paul Graham, peak oil, Peter Thiel, phenotype, Pierre-Simon Laplace, placebo effect, Potemkin village, power law, precautionary principle, prediction markets, premature optimization, price anchoring, principal–agent problem, publication bias, recommendation engine, remote working, replication crisis, Richard Feynman, Richard Feynman: Challenger O-ring, Richard Thaler, ride hailing / ride sharing, Robert Metcalfe, Ronald Coase, Ronald Reagan, Salesforce, school choice, Schrödinger's Cat, selection bias, Shai Danziger, side project, Silicon Valley, Silicon Valley startup, speech recognition, statistical model, Steve Jobs, Steve Wozniak, Steven Pinker, Streisand effect, sunk-cost fallacy, survivorship bias, systems thinking, The future is already here, The last Blockbuster video rental store is in Bend, Oregon, The Present Situation in Quantum Mechanics, the scientific method, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, Tragedy of the Commons, transaction costs, uber lyft, ultimatum game, uranium enrichment, urban planning, vertical integration, Vilfredo Pareto, warehouse robotics, WarGames: Global Thermonuclear War, When a measure becomes a target, wikimedia commons

The deterrence model can be appropriate when you want to try to prevent another person or organization from taking an action that would be harmful to you or society at large. In the criminal justice system, punishments may be enacted to try to deter future crime (e.g., three-strikes laws). Government regulations are often designed in part to deter unpleasant future economic or societal outcomes (e.g., deposit insurance deterring bank runs). Businesses also take actions to deter new entrants, for example, by using their scale to price goods so low that new firms cannot profitably compete (e.g., Walmart) or lobbying for regulations that benefit them at the expense of competition (e.g., anti–net neutrality laws). The primary challenge of this model, though, is actually finding an effective deterrent.


pages: 561 words: 114,843

Startup CEO: A Field Guide to Scaling Up Your Business, + Website by Matt Blumberg

activist fund / activist shareholder / activist investor, airport security, Albert Einstein, AOL-Time Warner, bank run, Ben Horowitz, Blue Ocean Strategy, book value, Broken windows theory, crowdsourcing, deskilling, fear of failure, financial engineering, high batting average, high net worth, hiring and firing, Inbox Zero, James Hargreaves, Jeff Bezos, job satisfaction, Kickstarter, knowledge economy, knowledge worker, Lean Startup, Mark Zuckerberg, minimum viable product, pattern recognition, performance metric, pets.com, rolodex, Rubik’s Cube, Salesforce, shareholder value, Silicon Valley, Skype

If you have gathered all the input you need and you’re still not sure what to do, give yourself a deadline for making the decision. Try bouncing the decision off a couple of people who you trust to see how it feels to articulate the decision and explain its consequences. Then stick to your deadline and decide one way or the other. No extensions. CHAPTER NINETEEN MAKING SURE THERE’S ENOUGH MONEY IN THE BANK Running a business is very different from managing your personal finances. The revenue is less predictable than a salary; multiple people contribute to expenses; and there’s a lag time between revenue/expense and cash impact. Keeping a watchful eye on cash is especially important for two reasons: funding requirements and funding availability don’t always go hand-in-hand and most startups regularly have to deal with the fundamental quandary of rapid growth being at odds with profitability.


pages: 380 words: 118,675

The Everything Store: Jeff Bezos and the Age of Amazon by Brad Stone

airport security, Amazon Mechanical Turk, Amazon Web Services, AOL-Time Warner, Apollo 11, bank run, Bear Stearns, Bernie Madoff, big-box store, Black Swan, book scanning, Brewster Kahle, buy and hold, call centre, centre right, Chuck Templeton: OpenTable:, Clayton Christensen, cloud computing, collapse of Lehman Brothers, crowdsourcing, cuban missile crisis, Danny Hillis, deal flow, Douglas Hofstadter, drop ship, Elon Musk, facts on the ground, fulfillment center, game design, housing crisis, invention of movable type, inventory management, James Dyson, Jeff Bezos, John Markoff, junk bonds, Kevin Kelly, Kiva Systems, Kodak vs Instagram, Larry Ellison, late fees, loose coupling, low skilled workers, Maui Hawaii, Menlo Park, Neal Stephenson, Network effects, new economy, off-the-grid, optical character recognition, PalmPilot, pets.com, Ponzi scheme, proprietary trading, quantitative hedge fund, reality distortion field, recommendation engine, Renaissance Technologies, RFID, Rodney Brooks, search inside the book, shareholder value, Silicon Valley, Silicon Valley startup, six sigma, skunkworks, Skype, SoftBank, statistical arbitrage, Steve Ballmer, Steve Jobs, Steven Levy, Stewart Brand, the long tail, Thomas L Friedman, Tony Hsieh, two-pizza team, Virgin Galactic, Whole Earth Catalog, why are manhole covers round?, zero-sum game

Moreover, the company’s negative-working-capital model would continue to generate cash from sales to fund its operations. Amazon was also well along in the process of cutting costs. The real danger for Amazon was that the Lehman report might turn into a self-fulfilling prophecy. If Suria’s predictions spooked suppliers into going on the equivalent of a bank run and demanding immediate payment from Amazon for their products, Amazon’s expenses might rise. If Suria frightened customers and they turned away from Amazon because they believed, from the ubiquitous news coverage, that the Internet was only a fad, Amazon’s revenue growth could go down. Then it really could be in trouble.


pages: 523 words: 111,615

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

accounting loophole / creative accounting, affirmative action, Alan Greenspan, An Inconvenient Truth, bank run, banking crisis, behavioural economics, Berlin Wall, bonus culture, Branko Milanovic, BRICs, business cycle, call centre, carbon tax, Cass Sunstein, central bank independence, classic study, 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, general purpose technology, 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, Paradox of Choice, Pareto efficiency, principal–agent problem, profit motive, purchasing power parity, railway mania, rising living standards, Robert Solow, Ronald Reagan, selective serotonin reuptake inhibitor (SSRI), Silicon Valley, social contagion, South Sea Bubble, Steven Pinker, tacit knowledge, 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, vertical integration, web application, web of trust, winner-take-all economy, World Values Survey, zero-sum game

She was with Northern Rock, and there was an old-fashioned run on the bank. It was unable to meet customers’ demand for withdrawals and had to ask the Bank of England to lend it the cash. The television news showed lines of anxious depositors hoping to take out all their funds. It was the first full-fledged bank run in living memory in the United Kingdom. I told her that the government would bail out all the depositors, as it would be political suicide to do anything else. My sister ignored my advice (although it ultimately turned out to be right) and joined the line outside her local branch. As for Northern Rock, it had to be taken over by the British government.


pages: 406 words: 113,841

The American Way of Poverty: How the Other Half Still Lives by Sasha Abramsky

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, American Legislative Exchange Council, bank run, basic income, benefit corporation, big-box store, collective bargaining, deindustrialization, fixed income, Francis Fukuyama: the end of history, full employment, ghettoisation, Gini coefficient, government statistician, guns versus butter model, housing crisis, illegal immigration, immigration reform, income inequality, indoor plumbing, job automation, Kickstarter, land bank, Mark Zuckerberg, Maui Hawaii, microcredit, military-industrial complex, mortgage debt, mortgage tax deduction, new economy, Occupy movement, off-the-grid, offshore financial centre, payday loans, plutocrats, Ponzi scheme, Potemkin village, profit motive, Ronald Reagan, school vouchers, upwardly mobile, War on Poverty, Washington Consensus, women in the workforce, working poor, working-age population, Works Progress Administration

The percentage of poverty is higher in the rural counties and parishes. It’s a serious concern for us, say, in Washington Parish, where there’s not much economics driving things. We have challenges geographically. It’s spreading; it’s not just an urban phenomenon. We see the homeless population increasing; food banks run low. If you talk to our food bank directors, they’ll tell you it’s a continuing challenge to keep the banks stocked. In our imagination, we hermetically seal off this kind of saga from the broader American story. We like to think that the “pockets” of poverty referred to by Costanza are just that: isolated pockets in a land of plenty.


pages: 422 words: 113,830

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

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

For obvious reasons, quick short-term profits usually worked to diminish the concern vendors would have over long-term stability. 12 Ibid. 13 “Nasty Side Effects of Debt Innovation,” Financial Times, September 10, 2007. 14 John Authers, “Big Banks Are Moving Back to Center Stage,” Financial Times, August 25, 2007. 15 “New Players Join the Credit Game,” Financial Times, March 13, 2007. 16 The old individual quotations are no longer necessary now that the spreading economic crisis has put a new spotlight on Greenspan’s collusions and mistakes. For examples of this emerging genre, see “Roots of Credit Crisis Laid at Fed’s Door,” MarketWatch, October 24, 2007, and Edmund L. Andrews, “Fed and Regulators Shrugged as the Subprime Crisis Spread,” New York Times, December 18, 2007. 17 “Credit Turmoil ‘Has Hallmarks of Bank Run,’ ” Financial Times, September 2, 2007. 18 Mohamed El-Erian, “In the New Liquidity Factories, Buyers Must Still Beware,” Financial Times, March 22, 2007. 19 David W. Tice, “Report to Shareholders,” Prudent Bear Funds, Inc., April 30, 2007. 20 Satyajit Das, “Credit Crunch: The New Diet Snack of Financial Markets,” www.prudentbear.com, September 5, 2007. 21 Bill Gross, “What Do They Know?”


pages: 446 words: 117,660

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

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

Recessions, even nasty ones, didn’t stop happening; the U.S. unemployment rate hit almost 11 percent in 1982. But that recession, like most slumps after World War II, was more like shock therapy than a heart attack: it was more or less deliberately imposed by policymakers to cool off what they feared was about to become runaway inflation. Nobody expected the return of old-style “panics,” with bank runs and businesses going under because people were hiding their savings under mattresses. But that’s what happened in Thailand, Malaysia, Indonesia, South Korea in the late 1990s. A slower-motion crisis, a sustained malaise, came to Japan, which just a few years before had been widely seen as an emerging economic superpower.


pages: 405 words: 121,531

Influence: Science and Practice by Robert B. Cialdini

Albert Einstein, attribution theory, bank run, behavioural economics, cognitive dissonance, conceptual framework, desegregation, Everything should be made as simple as possible, experimental subject, Mars Rover, meta-analysis, Mikhail Gorbachev, Milgram experiment, Norman Macrae, Ralph Waldo Emerson, telemarketer, The Wisdom of Crowds

John, Kevin, 211 Salovey, Peter, 200 Sanka coffee, 183, 184, 191–192 Saturday Night Fever, 221 Scarcity principle, 199–200 and censorship, 210–213 competition for resources, 217–221 defense against, 221–225 numerical scarcity and, 200–202 operating conditions for, 213–221 psychological issues in, 203–206 time limits and, 203 Schachter, Stanley, 103–107 Schein, Edgar, 61 Segal, Henry, 66 Self, William, 219 Self-esteem, disassociated from attractiveness, 148 Shadel, Doug, 94 Shaklee Corporation, 144 Sheen, Martin, 184 Sherif, Muzafer, 154 Sherman, Steven, 60 Shopping carts, 109–110 scarcity principle and, 218–219 Similarity effect on social relations, 148–149 and social proof principle, 118–120 Singapore, bank run in, 136–137 Size, conveying status, 185–186 Social proof principle, 99 advertising and promotion uses of, 99–102, 142 benefits of, 131 and bystander phenomenon, 110–117 and copycat crime, 126–128 cultural issues in 136–137 defending oneself against, 131–137 and herd mentality, 135–138 manipulation of, 132–135, 138 and religion, 102–109 research on, 100–101, 113–115 similarity and, 118–120 and suicide, 120–126, 128–131 therapies based on, 101–102 uncertainty in, 110–112 Sports, association principle and, 166–170 Stanko, Jack, 60 Status clothing indicating, 188–190 size and, 185–186 titles and, 184–187 trappings of, 190–191 Stereotyped behavior, 7 Stevenson, McLean, 149 Stomach signs, regarding undue influence, 89–91 Streisand, Barbra, 182 Styron, William, 79 Suicide mass, 128–131 social proof principle and, 120–126 statistics on, 123–125 Swanson, Richard, 76–77 Tamraz, Roger, 26 Technology, and automaticity, 230 Teen years, psychological reactance in, 206–207, 208 Television, canned laughter on, 98 Terrible twos, 205–206, 208 Thonga people, 74 Thorne, Avril, 168 Tiananmen Square, 80 Time pressure, 203 Titles, conveying authority, 184–187 Toy industry, use of consistency principle by, 57–59 Trappings, of status, 190–191 Travolta, John, 221 Trigger feature, 3 Tupperware parties, 142–143 Turkeys, parenting by, 2–3, 99, 228–229 Uncertainty, and social proof principle, 110–112 Uniforms, 188–189 Van Kampen, Jakob, 109 Vartan Bhanji, 19 Virgil, 174 Watergate scandal, 41–42 Watson, Thomas, 9–10 Weather readers, attitudes toward, 159–160, 161 Werther effect, 122–126 West, Louis Jolyon, 129 Whitaker, Chuck, 161 Whitehead, Alfred North, 1 Williams, Brian, 184 Wilson, Lee Alexis, 112 Wilson, S.


pages: 410 words: 119,823

Radical Technologies: The Design of Everyday Life by Adam Greenfield

3D printing, Airbnb, algorithmic bias, algorithmic management, AlphaGo, augmented reality, autonomous vehicles, bank run, barriers to entry, basic income, bitcoin, Black Lives Matter, blockchain, Boston Dynamics, business intelligence, business process, Californian Ideology, call centre, cellular automata, centralized clearinghouse, centre right, Chuck Templeton: OpenTable:, circular economy, cloud computing, Cody Wilson, collective bargaining, combinatorial explosion, Computer Numeric Control, computer vision, Conway's Game of Life, CRISPR, cryptocurrency, David Graeber, deep learning, DeepMind, dematerialisation, digital map, disruptive innovation, distributed ledger, driverless car, drone strike, Elon Musk, Ethereum, ethereum blockchain, facts on the ground, fiat currency, fulfillment center, gentrification, global supply chain, global village, Goodhart's law, Google Glasses, Herman Kahn, Ian Bogost, IBM and the Holocaust, industrial robot, informal economy, information retrieval, Internet of things, Jacob Silverman, James Watt: steam engine, Jane Jacobs, Jeff Bezos, Jeff Hawkins, job automation, jobs below the API, John Conway, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, John Perry Barlow, John von Neumann, joint-stock company, Kevin Kelly, Kickstarter, Kiva Systems, late capitalism, Leo Hollis, license plate recognition, lifelogging, M-Pesa, Mark Zuckerberg, means of production, megacity, megastructure, minimum viable product, money: store of value / unit of account / medium of exchange, natural language processing, Network effects, New Urbanism, Nick Bostrom, Occupy movement, Oculus Rift, off-the-grid, PalmPilot, Pareto efficiency, pattern recognition, Pearl River Delta, performance metric, Peter Eisenman, Peter Thiel, planetary scale, Ponzi scheme, post scarcity, post-work, printed gun, proprietary trading, RAND corporation, recommendation engine, RFID, rolodex, Rutger Bregman, Satoshi Nakamoto, self-driving car, sentiment analysis, shareholder value, sharing economy, Shenzhen special economic zone , Sidewalk Labs, Silicon Valley, smart cities, smart contracts, social intelligence, sorting algorithm, special economic zone, speech recognition, stakhanovite, statistical model, stem cell, technoutopianism, Tesla Model S, the built environment, The Death and Life of Great American Cities, The Future of Employment, Tony Fadell, transaction costs, Uber for X, undersea cable, universal basic income, urban planning, urban sprawl, vertical integration, Vitalik Buterin, warehouse robotics, When a measure becomes a target, Whole Earth Review, WikiLeaks, women in the workforce

Perhaps the futurists would have been less puzzled had they attended more closely to what was going on in the world. It’s not such a stretch, after all, to imagine that people might be terrified by the thought of committing their assets to something so intangible, at a time when it felt like the wheels were coming off the entire global economy. With its carnage of foreclosures, evictions, layoffs and bank runs, the acute crisis of 2008 sufficed to prove to many that the core financial institutions of the West couldn’t be trusted—and if not the central banks, how much less so a bunch of cowboy startups? Perhaps people simply had more pressing concerns on their mind, and weren’t necessarily inclined to take a wild leap into the technological unknown.


pages: 394 words: 124,743

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

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

Further, GMAC hoped for access to other support programs, particularly those administered by the Federal Deposit Insurance Corporation. But the FDIC had wanted no part of the huge auto lender. An independent agency that, like the Federal Reserve, is not under the direct control of any branch of government, the FDIC was established during the Depression chiefly to insure consumers' savings accounts and put an end to 1930s-style bank runs, which it had done. Then came the current crisis, which saw the Bush administration turning to the FDIC for help. In response, the FDIC offered something called the Temporary Liquidity Guarantee Program. I had read about the TLGP but had no idea what it did. I learned that, in return for a fee, it enabled cash-strapped banks to sell bonds and commercial paper backed by an FDIC guarantee, allowing the banks to raise fresh capital at exceptionally low rates.


The Economics Anti-Textbook: A Critical Thinker's Guide to Microeconomics by Rod Hill, Anthony Myatt

American ideology, Andrei Shleifer, Asian financial crisis, bank run, barriers to entry, behavioural economics, Bernie Madoff, biodiversity loss, business cycle, cognitive dissonance, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, different worldview, electricity market, endogenous growth, equal pay for equal work, Eugene Fama: efficient market hypothesis, experimental economics, failed state, financial innovation, full employment, gender pay gap, Gini coefficient, Glass-Steagall Act, Gunnar Myrdal, happiness index / gross national happiness, Home mortgage interest deduction, Howard Zinn, income inequality, indoor plumbing, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, liberal capitalism, low interest rates, low skilled workers, market bubble, market clearing, market fundamentalism, Martin Wolf, medical malpractice, military-industrial complex, minimum wage unemployment, moral hazard, Paradox of Choice, Pareto efficiency, Paul Samuelson, Peter Singer: altruism, positional goods, prediction markets, price discrimination, price elasticity of demand, principal–agent problem, profit maximization, profit motive, publication bias, purchasing power parity, race to the bottom, Ralph Nader, random walk, rent control, rent-seeking, Richard Thaler, Ronald Reagan, search costs, shareholder value, sugar pill, The Myth of the Rational Market, the payments system, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, ultimatum game, union organizing, working-age population, World Values Survey, Yogi Berra

Postscript 1 Three of the better-known acronyms are SIVs (structured investment vehicles), CDOs (collateralized debt obligations) and ABCPs (asset-backed commercial paper). 2 This was the Depository Institutions Deregulation and Monetary Control Act of 1980. 3 This was the Alternative Mortgage Transaction Parity Act of 1982. 4 It also established the Federal Deposit Insurance Corporation (FDIC), which provided government insurance on bank deposits to prevent bank runs. This aspect of Glass-Steagall is still in place. 5 In this case the economies were called ‘economies of scope’ (the benefits that come from producing a variety of goods and services). 6 These consequences came to light only as the corporate and banking scandals emerged with the bankruptcy of Enron in 2001 and Worldcom in 2002. 7 Fannie Mae (and its ‘younger ­brother’ Freddie Mac) did themselves need bailouts.


pages: 388 words: 125,472

The Establishment: And How They Get Away With It by Owen Jones

anti-communist, Asian financial crisis, autism spectrum disorder, bank run, battle of ideas, Big bang: deregulation of the City of London, bonus culture, Boris Johnson, Bretton Woods, British Empire, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, centre right, citizen journalism, collapse of Lehman Brothers, collective bargaining, disinformation, don't be evil, Edward Snowden, Etonian, eurozone crisis, falling living standards, Francis Fukuyama: the end of history, full employment, G4S, glass ceiling, hiring and firing, housing crisis, inflation targeting, Intergovernmental Panel on Climate Change (IPCC), investor state dispute settlement, James Dyson, Jon Ronson, laissez-faire capitalism, land bank, light touch regulation, low interest rates, market fundamentalism, mass immigration, Monroe Doctrine, Mont Pelerin Society, moral hazard, Neil Kinnock, night-watchman state, Nixon triggered the end of the Bretton Woods system, Northern Rock, Occupy movement, offshore financial centre, old-boy network, open borders, Overton Window, plutocrats, popular capitalism, post-war consensus, profit motive, quantitative easing, race to the bottom, rent control, road to serfdom, Ronald Reagan, shareholder value, short selling, sovereign wealth fund, stakhanovite, statistical model, subprime mortgage crisis, Suez crisis 1956, The Wealth of Nations by Adam Smith, transfer pricing, Tyler Cowen, union organizing, unpaid internship, Washington Consensus, We are all Keynesians now, wealth creators, Winter of Discontent

Even the Conservative MP Andrew Tyrie claimed that government amendments had reduced the powers of the financial watchdog to enforce such a separation. In opposition, Vince Cable of the Liberal Democrats had called for the total separation of high street and investment banking, but this demand was abandoned by the coalition government. Many of the proposals of the report were watered down or abandoned, including limits on risks that major banks run. Lending to businesses is a pretty good indicator of the role banks are playing in helping to resuscitate an economy they had crashed. Yet rather than lending to businesses, banks used their new money to rebuild their balance sheets instead. In the autumn of 2013, bank lending suffered its biggest fall in two and a half years, plunging by £4.7 billion.


pages: 519 words: 118,095

Your Money: The Missing Manual by J.D. Roth

Airbnb, Alan Greenspan, asset allocation, bank run, book value, buy and hold, buy low sell high, car-free, Community Supported Agriculture, delayed gratification, diversification, diversified portfolio, do what you love, estate planning, Firefox, fixed income, full employment, hedonic treadmill, Home mortgage interest deduction, index card, index fund, John Bogle, late fees, lifestyle creep, low interest rates, mortgage tax deduction, Own Your Own Home, Paradox of Choice, passive investing, Paul Graham, random walk, retail therapy, Richard Bolles, risk tolerance, Robert Shiller, speech recognition, stocks for the long run, traveling salesman, Vanguard fund, web application, Zipcar

Lower fees. It's a shame to throw money away on service charges and other fees, so ask about free checking or to have fees reduced. Automation. Does the bank have a new website? Do they now offer free billpay? Can they help you set up a direct deposit of your paycheck? Special offers. Is the bank running any promotions? Banks often introduce new products and services to meet customer demand. They're perfectly content, however, to let you keep your old low-interest, high-fee accounts. It's up to you to take the initiative to ask for better deals! Tip It can pay to develop a relationship with a banker.


pages: 320 words: 87,853

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

Adam Curtis, Affordable Care Act / Obamacare, Alan Greenspan, algorithmic trading, Amazon Mechanical Turk, American Legislative Exchange Council, asset-backed security, Atul Gawande, bank run, barriers to entry, basic income, Bear Stearns, Berlin Wall, Bernie Madoff, Black Swan, bonus culture, Brian Krebs, business cycle, business logic, call centre, Capital in the Twenty-First Century by Thomas Piketty, Chelsea Manning, Chuck Templeton: OpenTable:, cloud computing, collateralized debt obligation, computerized markets, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, crowdsourcing, cryptocurrency, data science, Debian, digital rights, don't be evil, drone strike, Edward Snowden, en.wikipedia.org, Evgeny Morozov, Fall of the Berlin Wall, Filter Bubble, financial engineering, financial innovation, financial thriller, fixed income, Flash crash, folksonomy, full employment, Gabriella Coleman, Goldman Sachs: Vampire Squid, Google Earth, Hernando de Soto, High speed trading, hiring and firing, housing crisis, Ian Bogost, informal economy, information asymmetry, information retrieval, information security, interest rate swap, Internet of things, invisible hand, Jaron Lanier, Jeff Bezos, job automation, John Bogle, Julian Assange, Kevin Kelly, Kevin Roose, knowledge worker, Kodak vs Instagram, kremlinology, late fees, London Interbank Offered Rate, London Whale, machine readable, Marc Andreessen, Mark Zuckerberg, Michael Milken, mobile money, moral hazard, new economy, Nicholas Carr, offshore financial centre, PageRank, pattern recognition, Philip Mirowski, precariat, profit maximization, profit motive, public intellectual, quantitative easing, race to the bottom, reality distortion field, recommendation engine, regulatory arbitrage, risk-adjusted returns, Satyajit Das, Savings and loan crisis, search engine result page, shareholder value, Silicon Valley, Snapchat, social intelligence, Spread Networks laid a new fibre optics cable between New York and Chicago, statistical arbitrage, statistical model, Steven Levy, technological solutionism, the scientific method, too big to fail, transaction costs, two-sided market, universal basic income, Upton Sinclair, value at risk, vertical integration, WikiLeaks, Yochai Benkler, zero-sum game

The real reason that they are more creditworthy than a collegian is that the government itself implicitly or explicitly backs them.9 There’s no theoretical reason that interest rates couldn’t be reduced for students and raised for banks. But students lack the backroom connections that the finance sector so richly exploits.10 Of course, there has to be some federal support for fi nancial institutions—the bank runs of the Great Depression were too devastating for us to go back to 1920s-style laissez-faire. But the price of government support used to be an intricate set of regulations that strictly limited the risks banks could take. The Dodd-Frank Act of 2010 was supposed to adapt such risk regulation to the contemporary finance sector, but it is being implemented so slowly (and so incompletely) that it is hard to credit it as anything more than window dressing.11 It promises that Congress is “doing something” while leaving enough legal loopholes to ensure that little changes.12 And the quid pro quo between banks and government remains stacked in the banks’ favor.


pages: 756 words: 120,818

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

"World Economic Forum" Davos, 3D printing, Airbnb, Alan Greenspan, algorithmic trading, Alvin Toffler, bank run, banking crisis, barriers to entry, Bernie Sanders, Big Tech, bitcoin, Black Swan, blockchain, bond market vigilante , Boris Johnson, Branko Milanovic, Bretton Woods, Brexit referendum, British Empire, business cycle, business process, capital controls, carbon tax, Celtic Tiger, central bank independence, classic study, cloud computing, continuation of politics by other means, corporate governance, credit crunch, CRISPR, cryptocurrency, data science, deglobalization, deindustrialization, disinformation, disruptive innovation, distributed ledger, Donald Trump, driverless car, eurozone crisis, fake news, financial engineering, financial innovation, first-past-the-post, fixed income, gentrification, Geoffrey West, Santa Fe Institute, Gini coefficient, Glass-Steagall Act, global value chain, housing crisis, impact investing, income inequality, Intergovernmental Panel on Climate Change (IPCC), It's morning again in America, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", junk bonds, knowledge economy, liberal world order, Long Term Capital Management, longitudinal study, low interest rates, market bubble, minimum wage unemployment, new economy, Northern Rock, offshore financial centre, open economy, opioid epidemic / opioid crisis, Paris climate accords, pattern recognition, Peace of Westphalia, performance metric, Phillips curve, private military company, quantitative easing, race to the bottom, reserve currency, Robert Gordon, Robert Shiller, Robert Solow, Ronald Reagan, Scramble for Africa, secular stagnation, Silicon Valley, Sinatra Doctrine, South China Sea, South Sea Bubble, special drawing rights, Steve Bannon, Suez canal 1869, supply-chain management, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, total factor productivity, trade liberalization, tulip mania, Valery Gerasimov, Washington Consensus

Since 1820,” May 3, 2016, Metrocosm, http://metrocosm.com/animated-immigration-map/. 9. UN Refugee Agency, UNHCR, “Number of Refugees and Migrants from Venezuela Reaches 3 Million,” November 8, 2018, https://www.unhcr.org/news/press/2018/11/5be4192b4/number-refugees-migrants-venezuela-reaches-3-million.html. 10. Standard Chartered Bank runs a renminbi globalization indicator, which indicates that the international use of the Chinese currency has flagged in recent years. Standard Chartered, “Renminbi Tracker: How Global Is the Renminbi?,” October 10, 2018, https://www.sc.com/en/trade-beyond-borders/renminbi-globalisation-index/. Estimates provided in the Triennial Central Bank Survey of foreign exchange turnover in April 2016, released in September 2016.


pages: 627 words: 127,613

Transcending the Cold War: Summits, Statecraft, and the Dissolution of Bipolarity in Europe, 1970–1990 by Kristina Spohr, David Reynolds

anti-communist, bank run, Berlin Wall, Bretton Woods, computer age, conceptual framework, cuban missile crisis, Deng Xiaoping, failed state, Fall of the Berlin Wall, guns versus butter model, Kickstarter, Kitchen Debate, liberal capitalism, Mikhail Gorbachev, military-industrial complex, mutually assured destruction, Nixon shock, oil shock, open borders, Ronald Reagan, Ronald Reagan: Tear down this wall, shared worldview, Strategic Defense Initiative, Thomas L Friedman, Yom Kippur War, zero-sum game

Zhao was a keen economic modernizer and a vocal advocate of better relations with the United States, and losing him to the conservatives could well derail Deng’s entire reform agenda. So the general secretary pressed on, with Deng’s backing, but his difficulties multiplied in late 1988 and early 1989, in large part because of rash economic moves that sent prices soaring, leading to bank runs and shortages of basic goods.17 American intelligence analysts picked up signs of this power struggle in early 1989. Yet, equally significant for US policy towards China were the momentous changes underway in Sino-Soviet relations. Beijing and Moscow had been on a gentle upward slope towards normalization since 1982 but, even though bilateral trade had recently picked up and contacts intensified, Deng was not yet willing to bury the hatchet after decades of personal and geopolitical antagonism without first extracting something from the Soviets.


pages: 444 words: 124,631

Buy Now, Pay Later: The Extraordinary Story of Afterpay by Jonathan Shapiro, James Eyers

Airbnb, Alan Greenspan, Apple Newton, bank run, barriers to entry, Big Tech, Black Lives Matter, blockchain, book value, British Empire, clockwatching, cloud computing, collapse of Lehman Brothers, computer age, coronavirus, corporate governance, corporate raider, COVID-19, cryptocurrency, delayed gratification, diversification, Dogecoin, Donald Trump, Elon Musk, financial deregulation, George Floyd, greed is good, growth hacking, index fund, Jones Act, Kickstarter, late fees, light touch regulation, lockdown, low interest rates, managed futures, Max Levchin, meme stock, Mount Scopus, Network effects, new economy, passive investing, payday loans, paypal mafia, Peter Thiel, pre–internet, Rainbow capitalism, regulatory arbitrage, retail therapy, ride hailing / ride sharing, Robinhood: mobile stock trading app, rolodex, Salesforce, short selling, short squeeze, side hustle, Silicon Valley, Snapchat, SoftBank, sovereign wealth fund, tech bro, technology bubble, the payments system, TikTok, too big to fail, transaction costs, Vanguard fund

‘I handed the keys over to [Nick] and he really ramped it up and became the top seller of jewellery for eBay Australia.’16 As Nick’s studies neared an end, he started eyeing a career in investment banking, influenced by the lectures and his fellow students in his commerce degree. He’d also struck up a friendship with his neighbour, Anthony Eisen, who was half-suspicious, half-curious about Molnar’s nocturnal business activities. Eisen brokered an interview for Molnar at Lazard, the global investment bank run by Eisen’s former boss, John Wylie. Molnar missed out on the role, but Wylie referred him to his former business partner and mate from Oxford University, Mark Carnegie, who had run Lazard’s private-equity business for a few years before setting up his own shop, M.H. Carnegie & Co. Carnegie had a venture capital fund that was operating out of a warehouse-style space in Underwood Street, Paddington, and was recruiting talented young analysts to help him identify and manage start-ups.


pages: 453 words: 122,586

Samuelson Friedman: The Battle Over the Free Market by Nicholas Wapshott

2021 United States Capitol attack, Alan Greenspan, bank run, basic income, battle of ideas, Bear Stearns, Berlin Wall, Bretton Woods, business cycle, California gold rush, collective bargaining, coronavirus, corporate governance, COVID-19, creative destruction, David Ricardo: comparative advantage, Donald Trump, double helix, en.wikipedia.org, fiat currency, financial engineering, fixed income, floating exchange rates, full employment, God and Mammon, greed is good, Gunnar Myrdal, income inequality, indoor plumbing, invisible hand, John von Neumann, Joseph Schumpeter, Kenneth Arrow, laissez-faire capitalism, light touch regulation, liquidity trap, lockdown, low interest rates, Machinery of Freedom by David Friedman, market bubble, market clearing, mass immigration, military-industrial complex, Money creation, money market fund, Mont Pelerin Society, moral hazard, new economy, Nixon shock, Nixon triggered the end of the Bretton Woods system, paradox of thrift, Paul Samuelson, Philip Mirowski, Phillips curve, price mechanism, price stability, public intellectual, pushing on a string, quantitative easing, rent control, road to serfdom, Robert Bork, Robert Solow, Ronald Coase, Ronald Reagan, school vouchers, seminal paper, Simon Kuznets, social distancing, Tax Reform Act of 1986, The Chicago School, The Great Moderation, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, too big to fail, trickle-down economics, universal basic income, upwardly mobile, urban renewal, War on Poverty, We are all Keynesians now, Works Progress Administration, zero-sum game

. … We live in the age after Keynes, and there is no going back to Herbert Hooverism.”17 But by denigrating over many decades government intervention of any sort, Milton Friedman and others had invited the return of do-nothing Hooverism. And if in 2008 a second Great Depression had been narrowly avoided by a return to Keynes-like policies, the financial freeze served to upset the cozy assumption held by Bernanke and others that the bad old days of bank runs and serial bankruptcies had been replaced by the sunlit certainty of the Great Moderation. The events of 2008 undermined the logic of the rational-expectations school who argued that those who operate the markets know enough to avoid catastrophe. Why had there been no “rational expectation” of a financial freeze?


pages: 419 words: 130,627

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

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

Paulson called Dimon in early September and urged him to consider adding Morgan Stanley to his list of conquests for 2008—at a cost of literally zero—in the hope of averting a possible collapse of the highly respected investment bank. Hedge funds were pulling their money out of Morgan Stanley’s prime brokerage unit, and regulators were worried that another bank run might be in the offing. This time, Dimon balked. Taking over a company with so much overlap, he explained, would result in two or more years of internal bloodbaths, and would be likely to turn the company into a decidedly unpleasant place to work. Although he coveted the investment bank’s brokerage subsidiary, Dean Witter, it just wasn’t worth all this.


pages: 504 words: 139,137

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

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

For instance, at most 20% of the capital can pass through the gate during any quarter end. This limit helps the hedge fund avoid a fire sale, but the downside is that investors who fear that the gate will close may try to get their capital back before it is too late, which can create a “run” on the hedge fund similar to a bank run. Hence, having a gate can make it more likely that the fund will need it. Whereas gates are sometimes used by hedge funds that generally invest in illiquid but tradable securities, side pockets are used by hedge funds that own mostly liquid securities but have a subset of securities that are very illiquid.


The Trade Lifecycle: Behind the Scenes of the Trading Process (The Wiley Finance Series) by Robert P. Baker

asset-backed security, bank run, banking crisis, Basel III, Black-Scholes formula, book value, Brownian motion, business continuity plan, business logic, business process, collapse of Lehman Brothers, corporate governance, credit crunch, Credit Default Swap, diversification, financial engineering, fixed income, functional programming, global macro, hiring and firing, implied volatility, interest rate derivative, interest rate swap, locking in a profit, London Interbank Offered Rate, low interest rates, margin call, market clearing, millennium bug, place-making, prediction markets, proprietary trading, short selling, statistical model, stochastic process, the market place, the payments system, time value of money, too big to fail, transaction costs, value at risk, Wiener process, yield curve, zero-coupon bond

Banks need to: hold and use the right data satisfy an exponential rise in regulator demands for reporting and disclosure convince regulators they can understand, aggregate and disaggregate, manage risks by correct use of data, systems and IT architecture deal with regulatory pressure to improve their internal aggregation and reporting of risk data enhance business pressures to make better use of their data and to improve the efficiency of their data handling. This is creating massive costs for banks and forcing tough decisions about the prioritisation of competing IT projects. Some banks run the risk of building a castle made of sand given the absence of existing robust systems. Meanwhile, banks also need to address the new and unforeseeable risks in data privacy and cybercrime, conflicting national laws and the impact of retrospective investigations, in an environment where vast amounts of data are indefinitely available.


pages: 441 words: 136,954

That Used to Be Us by Thomas L. Friedman, Michael Mandelbaum

addicted to oil, Affordable Care Act / Obamacare, Alan Greenspan, Albert Einstein, Amazon Web Services, American Society of Civil Engineers: Report Card, Andy Kessler, Ayatollah Khomeini, bank run, barriers to entry, Bear Stearns, Berlin Wall, blue-collar work, Bretton Woods, business process, call centre, carbon footprint, carbon tax, Carmen Reinhart, Cass Sunstein, centre right, Climatic Research Unit, cloud computing, collective bargaining, corporate social responsibility, cotton gin, creative destruction, Credit Default Swap, crowdsourcing, delayed gratification, drop ship, energy security, Fall of the Berlin Wall, fear of failure, full employment, Google Earth, illegal immigration, immigration reform, income inequality, Intergovernmental Panel on Climate Change (IPCC), job automation, Kenneth Rogoff, knowledge economy, Lean Startup, low interest rates, low skilled workers, Mark Zuckerberg, market design, mass immigration, more computing power than Apollo, Network effects, Nixon triggered the end of the Bretton Woods system, obamacare, oil shock, PalmPilot, pension reform, precautionary principle, proprietary trading, Report Card for America’s Infrastructure, rising living standards, Ronald Reagan, Rosa Parks, Saturday Night Live, shareholder value, Silicon Valley, Silicon Valley startup, Skype, Steve Jobs, the long tail, the scientific method, Thomas L Friedman, too big to fail, University of East Anglia, vertical integration, WikiLeaks

At the same time, regulations and regulatory bodies provide the vital foundation of trust that fosters innovation and risk-taking. The creation of the Securities and Exchange Commission in 1934 increased the importance of the New York Stock Exchange by making it a less risky place. The Federal Deposit Insurance Corporation, created by the Banking Act of 1933, substantially reduced the chance of bank runs, and the stability of the FDIC helped attract capital from around the world. The North American Free Trade Agreement, which went into effect in 1994, created a regulatory framework that has triggered massive cross-border investments and trade between the United States and both Mexico and Canada.


pages: 430 words: 140,405

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

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

New people arrived who did not fit in, and established staff members could feel the difference so sharply that at one point it seemed everyone I knew was looking for a new job. It’s a strange truth, but when you have the right mix of people, and there’s mutual respect for what other people do and how they operate, a corporation such as an investment bank runs really smoothly. But it never takes much to screw that up, and once that happens, suddenly the chemistry has gone. I suppose it’s like that in sports teams too, probably in everything. All I knew was I had to get out of there. I was still seeking the holy grail, and the son of a bitch had to be somewhere.


pages: 457 words: 143,967

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

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

One bank in particular, HBOS, was finding it hard to fund itself, having reported a halving of profits and a one-third increase in bad debts at the end of July. The Bank of England was covertly providing it with funds but customers were withdrawing deposits at an alarming rate, and the British government had to facilitate its rescue by Lloyds on 17 September. There were similar bank runs and rescues across Europe: Glitnir bank in Iceland, Fortis Group in Belgium, Luxembourg and Holland, and Dexia in Belgium. In a futile attempt to stabilize markets, the British, American, Canadian and French authorities banned the short selling of bank shares. Brown led other world leaders in thinking through the crisis, and he was the first to see where it might lead.


Adam Smith: Father of Economics by Jesse Norman

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

The effect of this combination of factors is to give asset markets, far more than product markets, a pronounced tendency towards boom and bust. Far from moving towards equilibrium, these markets are often subject to destabilizing forces which operate through, and are worsened by, channels specific to them. In the banking system, the most basic form of this is a bank run. In normal times banks operate by taking savers’ deposits, which can generally be withdrawn at will, and then lending them out for weeks or months, sometimes years, at a time. If savers all seek their deposits at once, however, the bank cannot meet the demand from cash on hand; and if the bank is not large enough, or cannot borrow enough in time from the money markets for other reasons to cover the shortfall, it will quickly fail.


pages: 448 words: 142,946

Sacred Economics: Money, Gift, and Society in the Age of Transition by Charles Eisenstein

Albert Einstein, back-to-the-land, bank run, Bernie Madoff, big-box store, bread and circuses, Bretton Woods, capital controls, carbon credits, carbon tax, clean water, collateralized debt obligation, commoditize, corporate raider, credit crunch, David Ricardo: comparative advantage, debt deflation, degrowth, deindustrialization, delayed gratification, disintermediation, diversification, do well by doing good, fiat currency, financial independence, financial intermediation, fixed income, floating exchange rates, Fractional reserve banking, full employment, global supply chain, God and Mammon, happiness index / gross national happiness, hydraulic fracturing, informal economy, intentional community, invisible hand, Jane Jacobs, land tenure, land value tax, Lao Tzu, Lewis Mumford, liquidity trap, low interest rates, McMansion, means of production, megaproject, Money creation, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, multilevel marketing, new economy, off grid, oil shale / tar sands, Own Your Own Home, Paul Samuelson, peak oil, phenotype, planned obsolescence, Ponzi scheme, profit motive, quantitative easing, race to the bottom, Scramble for Africa, special drawing rights, spinning jenny, technoutopianism, the built environment, Thomas Malthus, too big to fail, Tragedy of the Commons

It could also encompass the social and ecological effects of the investment. Whatever entity performs this function, be it a traditional bank, cooperative, or P2P community, must have a good general understanding of business and must be willing to assume responsibility for its evaluations. New forms of P2P banking run up against the same general problem of determining creditworthiness over the anonymous gulf of cyberspace. One could imagine a system in which a database connects you, who have $5,000 you want to lend for six months, to a distant person who wants to borrow it for six months. You don’t know her.


pages: 515 words: 142,354

The Euro: How a Common Currency Threatens the Future of Europe by Joseph E. Stiglitz, Alex Hyde-White

"there is no alternative" (TINA), "World Economic Forum" Davos, Alan Greenspan, bank run, banking crisis, barriers to entry, battle of ideas, behavioural economics, Berlin Wall, Bretton Woods, business cycle, buy and hold, capital controls, carbon tax, Carmen Reinhart, cashless society, central bank independence, centre right, cognitive dissonance, collapse of Lehman Brothers, collective bargaining, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, currency peg, dark matter, David Ricardo: comparative advantage, disintermediation, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial innovation, full employment, George Akerlof, Gini coefficient, global supply chain, Great Leap Forward, Growth in a Time of Debt, housing crisis, income inequality, incomplete markets, inflation targeting, information asymmetry, investor state dispute settlement, invisible hand, Kenneth Arrow, Kenneth Rogoff, knowledge economy, light touch regulation, low interest rates, manufacturing employment, market bubble, market friction, market fundamentalism, Martin Wolf, Mexican peso crisis / tequila crisis, money market fund, moral hazard, mortgage debt, neoliberal agenda, new economy, open economy, paradox of thrift, pension reform, pensions crisis, price stability, profit maximization, purchasing power parity, quantitative easing, race to the bottom, risk-adjusted returns, Robert Shiller, Ronald Reagan, Savings and loan crisis, savings glut, secular stagnation, Silicon Valley, sovereign wealth fund, the payments system, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transfer pricing, trickle-down economics, Washington Consensus, working-age population

But Europe’s federal budget is, as we have noted, miniscule. There is simply little discretionary money that can be used in a countercyclical way. In the United States, there is a third source of shared support in the event of an adverse shock: the banking system is, to a large extent, a national banking system. If any bank runs into a severe problem (as happened to many a bank in 2008), the institution is bailed out not by the individual state but by a federal agency (the Federal Deposit Insurance Corporation, or FDIC). If the state of Washington had been forced to bail out Washington Mutual, the country’s largest bank that failed in the financial crisis, it couldn’t have done it—it would have been similar to Iceland trying to bail out banks ten times bigger than the country’s GDP.10 Similarly, California might have had a hard time dealing with the problems posed by the failure of Countrywide Financial (the largest mortgage company, other than Fannie Mae and Freddie Mac).


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

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

By the time these crises had passed, banks had turned themselves from lenders into packagers of loans, investors, and providers of services. Regulators shifted the focus of regulation from static rules and solvency tests to capital adequacy, and eventually, to capital tests based on risk measurement. If we’re going to protect banks with deposit insurance and an implicit too-big-to-fail guarantee, they said, let the banks run themselves so as to minimize the likelihood that their equity disappears and the taxpayer steps in. From RiskMetrics’ point of view, it was easier to sell risk analytics to satisfy a regulatory requirement than purely on the strength of the information. JWPR007-Lindsey 302 May 7, 2007 17:27 h ow i b e cam e a quant No More Mr.


pages: 461 words: 128,421

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

"Friedman doctrine" OR "shareholder theory", Abraham Wald, activist fund / activist shareholder / activist investor, Alan Greenspan, Albert Einstein, Andrei Shleifer, AOL-Time Warner, asset allocation, asset-backed security, bank run, beat the dealer, behavioural economics, Benoit Mandelbrot, Big Tech, Black Monday: stock market crash in 1987, Black-Scholes formula, book value, Bretton Woods, Brownian motion, business cycle, buy and hold, capital asset pricing model, card file, Carl Icahn, 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, democratizing finance, Dennis Tito, discovery of the americas, diversification, diversified portfolio, Dr. Strangelove, Edward Glaeser, Edward Thorp, endowment effect, equity risk premium, Eugene Fama: efficient market hypothesis, experimental economics, financial innovation, Financial Instability Hypothesis, fixed income, floating exchange rates, George Akerlof, Glass-Steagall Act, Henri Poincaré, Hyman Minsky, implied volatility, impulse control, index arbitrage, index card, index fund, information asymmetry, invisible hand, Isaac Newton, John Bogle, John Meriwether, John Nash: game theory, John von Neumann, joint-stock company, Joseph Schumpeter, junk bonds, Kenneth Arrow, libertarian paternalism, linear programming, Long Term Capital Management, Louis Bachelier, low interest rates, mandelbrot fractal, market bubble, market design, Michael Milken, Myron Scholes, New Journalism, Nikolai Kondratiev, Paul Lévy, Paul Samuelson, pension reform, performance metric, Ponzi scheme, power law, prediction markets, proprietary trading, prudent man rule, 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, rolodex, Ronald Reagan, seminal paper, shareholder value, Sharpe ratio, short selling, side project, Silicon Valley, Skinner box, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, statistical model, stocks for the long run, tech worker, 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, Two Sigma, Tyler Cowen, value at risk, Vanguard fund, Vilfredo Pareto, volatility smile, Yogi Berra

“The whole intellectual edifice collapsed in the summer of last year,” Greenspan admitted at the October 2008 hearing.4 That was when the private market for U.S. mortgage securities collapsed, beginning a fitful unraveling of asset market after asset market around the world. Distrust spread. Many previously thriving credit markets shut down entirely. Bank runs—long thought to endanger only actual banks—threatened any financial institution that ran on borrowed money. After Greenspan’s successor at the Fed, Ben Bernanke, and Treasury Secretary Hank Paulson decided in September 2008 not to step in to avert such a run on Lehman Brothers, global finance virtually ceased functioning.


The Hour of Fate by Susan Berfield

bank run, buy and hold, capital controls, collective bargaining, company town, Cornelius Vanderbilt, death from overwork, friendly fire, Howard Zinn, Ida Tarbell, income inequality, new economy, plutocrats, Ralph Waldo Emerson, Simon Kuznets, strikebreaker, the market place, transcontinental railway, wage slave, working poor

When he traveled, he noted the latitude of his destination and the time of his arrival, and wherever he was he kept a leather-bound journal of daily expenses: paper and postage,5 ice cream and strawberries, beaver hats, silk gloves, buggy rides, opera tickets. In 1854, the family moved to London after Junius accepted a partnership in the British office of the premier American private bank, run by George Peabody, to help direct European capital to the United States. Junius would one day take over, and he hoped Pierpont would do so after him: a Morgan dynasty. Pierpont was seventeen. He had graduated from the English High School of Boston, which specialized in math, and was eager to begin his career.


pages: 524 words: 130,909

The Contrarian: Peter Thiel and Silicon Valley's Pursuit of Power by Max Chafkin

3D printing, affirmative action, Airbnb, anti-communist, bank run, Bernie Sanders, Big Tech, bitcoin, Black Lives Matter, Black Monday: stock market crash in 1987, Blitzscaling, Boeing 747, borderless world, Cambridge Analytica, charter city, cloud computing, cognitive dissonance, Cornelius Vanderbilt, coronavirus, COVID-19, Credit Default Swap, cryptocurrency, David Brooks, David Graeber, DeepMind, digital capitalism, disinformation, don't be evil, Donald Trump, driverless car, Electric Kool-Aid Acid Test, Elon Musk, Ethereum, Extropian, facts on the ground, Fairchild Semiconductor, fake news, Ferguson, Missouri, Frank Gehry, Gavin Belson, global macro, Gordon Gekko, Greyball, growth hacking, guest worker program, Hacker News, Haight Ashbury, helicopter parent, hockey-stick growth, illegal immigration, immigration reform, Internet Archive, Jeff Bezos, John Markoff, Kevin Roose, Kickstarter, Larry Ellison, life extension, lockdown, low interest rates, Lyft, Marc Andreessen, Mark Zuckerberg, Maui Hawaii, Max Levchin, Menlo Park, military-industrial complex, moral panic, move fast and break things, Neal Stephenson, Nelson Mandela, Network effects, off grid, offshore financial centre, oil shale / tar sands, open borders, operational security, PalmPilot, Paris climate accords, Patri Friedman, paypal mafia, Peter Gregory, Peter Thiel, pets.com, plutocrats, Ponzi scheme, prosperity theology / prosperity gospel / gospel of success, public intellectual, QAnon, quantitative hedge fund, quantitative trading / quantitative finance, randomized controlled trial, regulatory arbitrage, Renaissance Technologies, reserve currency, ride hailing / ride sharing, risk tolerance, Robinhood: mobile stock trading app, Ronald Reagan, Sam Altman, Sand Hill Road, self-driving car, sharing economy, Sheryl Sandberg, Silicon Valley, Silicon Valley billionaire, Silicon Valley ideology, Silicon Valley startup, skunkworks, social distancing, software is eating the world, sovereign wealth fund, Steve Bannon, Steve Jobs, Steven Levy, Stewart Brand, surveillance capitalism, TaskRabbit, tech billionaire, tech worker, TechCrunch disrupt, techlash, technology bubble, technoutopianism, Ted Kaczynski, TED Talk, the new new thing, the scientific method, Tim Cook: Apple, transaction costs, Travis Kalanick, Tyler Cowen, Uber and Lyft, uber lyft, Upton Sinclair, Vitalik Buterin, We wanted flying cars, instead we got 140 characters, Whole Earth Catalog, WikiLeaks, William Shockley: the traitorous eight, Y Combinator, Y2K, yellow journalism, Zenefits

On September 15, Lehman Brothers, a Wall Street institution that had survived the Civil War, the Great Depression, and 9/11, but that had been aggressively underwriting securities tied to subprime mortgages, collapsed and filed for bankruptcy protection. Later that month, Washington Mutual, which had been founded in 1889 and which had earlier in the decade boasted about becoming the “Wal-Mart of Banking,” failed, causing a bank run. A deep recession followed in which regular people lost their jobs and, having been locked into mortgages they couldn’t afford, lost their homes. The fund managers who’d anticipated this pain and found trades to exploit it got ridiculously rich. Most famously, John Paulson made $4 billion buying credit default swaps as the market collapsed, which inspired Gregory Zuckerman’s book The Greatest Trade Ever.


pages: 561 words: 138,158

Shutdown: How COVID Shook the World's Economy by Adam Tooze

2021 United States Capitol attack, air freight, algorithmic trading, Anthropocene, Asian financial crisis, asset-backed security, Ayatollah Khomeini, bank run, banking crisis, Basel III, basic income, Ben Bernanke: helicopter money, Benchmark Capital, Berlin Wall, Bernie Sanders, Big Tech, bitcoin, Black Lives Matter, Black Monday: stock market crash in 1987, blue-collar work, Bob Geldof, bond market vigilante , Boris Johnson, Bretton Woods, Brexit referendum, business cycle, business process, business process outsourcing, buy and hold, call centre, capital controls, central bank independence, centre right, clean water, cognitive dissonance, contact tracing, contact tracing app, coronavirus, COVID-19, credit crunch, Credit Default Swap, cryptocurrency, currency manipulation / currency intervention, currency peg, currency risk, decarbonisation, deindustrialization, Donald Trump, Elon Musk, energy transition, eurozone crisis, facts on the ground, failed state, fake news, Fall of the Berlin Wall, fear index, financial engineering, fixed income, floating exchange rates, friendly fire, George Floyd, gig economy, global pandemic, global supply chain, green new deal, high-speed rail, housing crisis, income inequality, inflation targeting, invisible hand, It's morning again in America, Jeremy Corbyn, junk bonds, light touch regulation, lockdown, low interest rates, margin call, Martin Wolf, mass immigration, mass incarceration, megacity, megaproject, middle-income trap, Mikhail Gorbachev, Modern Monetary Theory, moral hazard, oil shale / tar sands, Overton Window, Paris climate accords, Pearl River Delta, planetary scale, Potemkin village, price stability, Productivity paradox, purchasing power parity, QR code, quantitative easing, remote working, reserve currency, reshoring, Robinhood: mobile stock trading app, Ronald Reagan, secular stagnation, shareholder value, Silicon Valley, six sigma, social distancing, South China Sea, special drawing rights, stock buybacks, tail risk, TikTok, too big to fail, TSMC, universal basic income, Washington Consensus, women in the workforce, yield curve

What brought Lehman down and threatened all the other banks was the fact that it lost access to the repo markets in which it had previously funded its giant balance sheet of mortgage-backed securities.15 The collective withdrawal of confidence on the part of its repo market counterparties was the equivalent of an instant bank run on the scale of hundreds of billions of dollars. Mortgage-backed securities had been put up for repo to such a large extent because they had been rated as AAA. In other words, they had been packaged to appear as safe assets. Most were in fact quite safe, but in a super-fast-moving market, all you needed was a whisper of doubt to shut off repo funding completely, for mortgage-backed securities or any other type of private debt.


pages: 535 words: 158,863

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

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

He pauses for a second and then adds, “Too many people—other than those linked with special interest groups—have simply been disconnected from these issues of international economic policy. So the reality is that whether it is because institutions are too weak and insufficiently democratic, or because people aren’t engaged enough in the process, we are leaving key decisions to the special interest groups and those that lead them.” In the case of banks running debt restructurings, the financial institutions have an obligation to their shareholders to maximize repayment in a way that may run directly contrary to the interests of the citizens of the borrower country, who may prefer the country invest its limited capital in social or job-creation programs, for example.


pages: 514 words: 152,903

The Best Business Writing 2013 by Dean Starkman

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

So despite a wave of policy overhauls by new national leaders, Italian and Spanish borrowing costs were rising to unsustainable levels. As they rose, so did borrowing costs for the countries’ small businesses, and they were gasping for affordable credit. Political turmoil in Greece raised the odds of a euro exit that many feared would trigger bank runs across Europe’s south. Companies around Europe made preparations for a breakup of the euro. Investors were increasingly pricing in catastrophe. Mr. Draghi and allies on the ECB’s executive board, especially Benoit Coeure of France and Jorg Asmussen of Germany, decided they needed a contingency plan.


pages: 514 words: 153,092

The Forgotten Man by Amity Shlaes

Alan Greenspan, anti-communist, bank run, banking crisis, Charles Lindbergh, collective bargaining, currency manipulation / currency intervention, electricity market, Ford Model T, Frederick Winslow Taylor, Glass-Steagall Act, Ida Tarbell, invisible hand, jobless men, Lewis Mumford, low interest rates, Mahatma Gandhi, plutocrats, short selling, Triangle Shirtwaist Factory, Upton Sinclair, wage slave, Works Progress Administration

Roosevelt asked for war powers to handle the emergency, just as Hoover had suggested in a note during the interregnum. Hoover had called for a bank holiday to end the banking crisis; Roosevelt’s first act was to declare a bank holiday to sort out the banks and build confidence. Now Roosevelt’s team worked with Republicans to write the first emergency legislation to stop the bank runs. Hoover had had Ogden Mills; Roosevelt had another respectable man as treasury secretary, Will Woodin. Ray Moley would later write of that period, “Mills, Woodin, Ballantine, Awalt, and I had forgotten to be Republicans or Democrats. We were just a bunch of men trying to save the banking system.”


pages: 582 words: 160,693

The Sovereign Individual: How to Survive and Thrive During the Collapse of the Welfare State by James Dale Davidson, William Rees-Mogg

affirmative action, agricultural Revolution, Alan Greenspan, Alvin Toffler, bank run, barriers to entry, Berlin Wall, borderless world, British Empire, California gold rush, classic study, clean water, colonial rule, Columbine, compound rate of return, creative destruction, Danny Hillis, debt deflation, ending welfare as we know it, epigenetics, Fall of the Berlin Wall, falling living standards, feminist movement, financial independence, Francis Fukuyama: the end of history, full employment, George Gilder, Hernando de Soto, illegal immigration, income inequality, independent contractor, informal economy, information retrieval, Isaac Newton, John Perry Barlow, Kevin Kelly, market clearing, Martin Wolf, Menlo Park, money: store of value / unit of account / medium of exchange, new economy, New Urbanism, Norman Macrae, offshore financial centre, Parkinson's law, pattern recognition, phenotype, price mechanism, profit maximization, rent-seeking, reserve currency, road to serfdom, Ronald Coase, Sam Peltzman, school vouchers, seigniorage, Silicon Valley, spice trade, statistical model, telepresence, The Nature of the Firm, the scientific method, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, trade route, transaction costs, Turing machine, union organizing, very high income, Vilfredo Pareto

It was more stable, with less inflation than the more heavily regulated and politicized system of banking and money employed in England during the same period.2' Michael Prowse of the Financial Times summarized Scotland's free-banking experience: "There was little fraud. There was no evidence of over-issue of notes. Banks did not typically hold either excessive or inadequate reserves. Bank runs were rare and not contagious. The free banks commanded the respect of citizens and provided a sound foundation for economic growth that outpaced that in England for most of the period."22 What worked well under the technological conditions of the eighteenth and nineteenth centuries will work even better with twenty-first-century technology.


pages: 586 words: 159,901

Wall Street: How It Works And for Whom by Doug Henwood

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, affirmative action, Alan Greenspan, Andrei Shleifer, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, bond market vigilante , book value, borderless world, Bretton Woods, British Empire, business cycle, buy the rumour, sell the news, capital asset pricing model, capital controls, Carl Icahn, central bank independence, computerized trading, corporate governance, corporate raider, correlation coefficient, correlation does not imply causation, credit crunch, currency manipulation / currency intervention, currency risk, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, dematerialisation, disinformation, diversification, diversified portfolio, Donald Trump, equity premium, Eugene Fama: efficient market hypothesis, experimental subject, facts on the ground, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, George Akerlof, George Gilder, Glass-Steagall Act, hiring and firing, Hyman Minsky, implied volatility, index arbitrage, index fund, information asymmetry, interest rate swap, Internet Archive, invisible hand, Irwin Jacobs, Isaac Newton, joint-stock company, Joseph Schumpeter, junk bonds, kremlinology, labor-force participation, late capitalism, law of one price, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, London Interbank Offered Rate, long and variable lags, Louis Bachelier, low interest rates, market bubble, Mexican peso crisis / tequila crisis, Michael Milken, microcredit, minimum wage unemployment, money market fund, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, oil shock, Paul Samuelson, payday loans, pension reform, planned obsolescence, plutocrats, Post-Keynesian economics, price mechanism, price stability, prisoner's dilemma, profit maximization, proprietary trading, publication bias, Ralph Nader, random walk, reserve currency, Richard Thaler, risk tolerance, Robert Gordon, Robert Shiller, Savings and loan crisis, selection bias, shareholder value, short selling, Slavoj Žižek, South Sea Bubble, stock buybacks, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Market for Lemons, The Nature of the Firm, The Predators' Ball, The Wealth of Nations by Adam Smith, transaction costs, transcontinental railway, women in the workforce, yield curve, zero-coupon bond

(To give a measure of how detailed: "sales of heavy trucks rose sharply, and business purchases likely accounted for some of the recent sizable increase in sales of light trucks; on the other hand, shipments of complete aircraft were weak.") All this discussion of the real economy preceded discussion of financial and monetary affairs, and far exceeded it in volume as well. The central bank runs a huge economic data generation and analysis apparatus, which confi- RENEGADES dently second-guesses official statistics, and, a Fed economist once told me, frequently prompts corrections that are buried in routine monthly revisions in Commerce and Labor Department data. Every twitch in the statistics is noted and mused over to death.


pages: 482 words: 149,351

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

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

Another reason was that they allowed banks to create new money out of thin air without any official restraint. The banking system in any country constantly creates new money when banks make new loans to customers. As the US economist J. K. Galbraith put it, ‘the process by which money is created is so simple that the mind is repelled’. To stop banks running amok, governments put brakes on money creation by enforcing reserve requirements, which restrict how much they can lend out in relation to their deposits. But the Euromarkets had none of these brakes. Eurodollar lending, a Bank of England memo noted, ‘is not controlled, as regards amount, nature or tenor: reliance is placed on the commercial prudence of the lenders’.


The-General-Theory-of-Employment-Interest-and-Money by John Maynard Keynes

bank run, behavioural economics, business cycle, collective bargaining, declining real wages, delayed gratification, full employment, invisible hand, laissez-faire capitalism, low interest rates, marginal employment, means of production, moral hazard, Paul Samuelson, price stability, profit motive, quantitative easing, secular stagnation, The Wealth of Nations by Adam Smith, We are all Keynesians now, working-age population

Relative Movements of Real Wages and Output (1939)353 Afterword by Robert Skidelsky 373 Index 377 Introduction by Paul Krugman History may not repeat itself, but sometimes the rhyming is pretty spectacular. That’s definitely true when it comes to recent macroeconomic events: the financial crisis of 2008 was all too reminiscent of the bank runs of the 1930s, and the protracted period of high unemployment that followed clearly echoed the Great Depression. And everything old was new again when it came to policy, too: in response to these shocks, many economists called for policies—like temporary fiscal stimulus to boost spending—whose roots obviously lay in a three-generations-old book, John Maynard Keynes’s The General Theory of Employment, Interest, and Money.


pages: 505 words: 147,916

Adventures in the Anthropocene: A Journey to the Heart of the Planet We Made by Gaia Vince

3D printing, agricultural Revolution, Anthropocene, bank run, biodiversity loss, car-free, carbon footprint, carbon tax, circular economy, citizen journalism, clean water, climate change refugee, congestion charging, crowdsourcing, decarbonisation, deindustrialization, driverless car, energy security, failed state, Google Earth, Haber-Bosch Process, hive mind, hobby farmer, informal economy, Intergovernmental Panel on Climate Change (IPCC), ITER tokamak, Kickstarter, Late Heavy Bombardment, load shedding, M-Pesa, Mars Rover, Masdar, megacity, megaproject, microdosing, mobile money, Neil Armstrong, ocean acidification, off grid, oil shale / tar sands, out of africa, Peter Thiel, phenotype, planetary scale, planned obsolescence, Ray Kurzweil, rewilding, Silicon Valley, Skype, smart cities, smart grid, smart meter, South China Sea, sovereign wealth fund, stem cell, supervolcano, sustainable-tourism, synthetic biology

When slum communities organise themselves, as many have begun to do either individually or as part of the wider, Slum-Dwellers International network which originated in India, they can achieve infrastructure improvements for a fraction of the cost of state provision. Residents of the Orangi slum in Karachi, Pakistan, for example, built their own sewerage system in the 1980s, slashing infant mortality. In Delhi, a bank run by and for street children since 2001, called the Children’s Development Khazana (‘treasure chest’), allows its 1,000 young customers to safely store and save their meagre earnings in twelve branches across the city, accumulating 5% interest. In a Durban slum, I met a group of waste-pickers, who were campaigning for greater recognition of the work they do and some protection for their livelihoods as South Africa mechanises and develops.


pages: 495 words: 144,101

Goddess of the Market: Ayn Rand and the American Right by Jennifer Burns

Abraham Maslow, Alan Greenspan, Alvin Toffler, anti-communist, Apollo 11, bank run, barriers to entry, centralized clearinghouse, collective bargaining, creative destruction, desegregation, feminist movement, financial independence, gentleman farmer, George Gilder, Herbert Marcuse, invisible hand, jimmy wales, Joan Didion, John Markoff, Joseph Schumpeter, knowledge worker, laissez-faire capitalism, Lewis Mumford, lone genius, Menlo Park, minimum wage unemployment, Mont Pelerin Society, new economy, Norman Mailer, offshore financial centre, Ponzi scheme, profit motive, public intellectual, RAND corporation, rent control, road to serfdom, Robert Bork, rolodex, Ronald Reagan, side project, Stewart Brand, The Chicago School, The Wisdom of Crowds, union organizing, urban renewal, We are as Gods, white flight, Whole Earth Catalog

Although they are clearly written by partisans of Rand and thus lack a critical edge, the essays in Mayhew’s books are based on historical evidence and carefully argued. They represent a significant step forward in Objectivist scholarship. Another major source of funding for Objectivist scholars is the charitable foundation of BB&T, one of the country’s largest banks. Run by John Allison, an avowed Objectivist, BB&T has stirred controversy with its grants to universities that require the teaching of Atlas Shrugged. Most of the scholars supported by BB&T are also affiliated with ARI in some capacity, including the Aristotelian scholar Alan Gotthelf and the philosopher Tara Smith, who holds the BB&T Chair for the Study of Objectivism at the University of Texas, Austin, and is the author of Ayn Rand’s Normative Ethics (2006).


pages: 665 words: 146,542

Money: 5,000 Years of Debt and Power by Michel Aglietta

accelerated depreciation, Alan Greenspan, bank run, banking crisis, Basel III, Berlin Wall, bitcoin, blockchain, Bretton Woods, British Empire, business cycle, capital asset pricing model, capital controls, cashless society, central bank independence, circular economy, collapse of Lehman Brothers, collective bargaining, corporate governance, David Graeber, debt deflation, dematerialisation, Deng Xiaoping, double entry bookkeeping, energy transition, eurozone crisis, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, forward guidance, Francis Fukuyama: the end of history, full employment, German hyperinflation, income inequality, inflation targeting, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invention of writing, invisible hand, joint-stock company, Kenneth Arrow, Kickstarter, land bank, liquidity trap, low interest rates, margin call, means of production, Money creation, money market fund, moral hazard, Nash equilibrium, Network effects, Northern Rock, oil shock, planetary scale, plutocrats, precautionary principle, price stability, purchasing power parity, quantitative easing, race to the bottom, reserve currency, secular stagnation, seigniorage, shareholder value, special drawing rights, special economic zone, stochastic process, Suez crisis 1956, the payments system, the scientific method, tontine, too big to fail, trade route, transaction costs, transcontinental railway, Washington Consensus

Trust companies had grown considerably in both size and number in the great wave of expansion during the early years of the twentieth century. On 21 October, the Knickerbocker Trust Company was unable to honour the deadlines of its engagements with banks on the New York market.14 This prompted a bank run on its deposits and the suspension of its payments. This financial firm was not a member of the New York Clearing House (NYCHA) because, like most other trusts, it had refused to accept the latter’s conditions. It was thus unable to make use of the clearing house’s emergency aid. On 24 October, the contagion spread to all trusts and banks.


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

anti-communist, bank run, barriers to entry, Boris Johnson, British Empire, classic study, cuban missile crisis, General Motors Futurama, ghettoisation, glass ceiling, Isaac Newton, Jeremy Corbyn, 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

The plan involved planting a suitcase containing the same explosive as that recently used in the Bologna station massacre, with a view to implicating foreign terrorists rather than the Italian neo-Fascists who were actually responsible. • In 1998, Gelli went on the run just after the Supreme Court confirmed a twelve-year sentence for his role in the collapse of the Banco Ambrosiano–the bank run by Roberto Calvi, of Blackfriars Bridge notoriety. The Venerable Master was recaptured four months later in the South of France; he had a beard and was wearing a beret. • Gelli was also convicted of slandering the magistrates investigating his case. But the conviction was cancelled under the statute of limitations.


How to Be a Liberal: The Story of Liberalism and the Fight for Its Life by Ian Dunt

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

‘The complete evaporation of liquidity in certain market segments of the US securitisation market,’ it said, ‘has made it impossible to value certain assets fairly regardless of their quality or credit rating.’ It was the death knell of an entire way of doing business. If the securities could not be valued, they could not be used as collateral. And if they could not be used as collateral, there would be no funding. That signified a general liquidity freeze: a bank run the size of the world. In September 2007, the British bank Northern Rock failed. Savers queued up outside its branches trying to take their money out. It seemed like a replay of the Great Depression, when lack of confidence in banks had pulverised the economy. But in fact, 80 per cent of Northern Rock’s funding had nothing to do with the queueing depositors.


Animal Spirits by Jackson Lears

1960s counterculture, Alan Greenspan, bank run, banking crisis, behavioural economics, business cycle, buy and hold, California gold rush, clockwork universe, conceptual framework, Cornelius Vanderbilt, creative destruction, cuban missile crisis, dark matter, Doomsday Clock, double entry bookkeeping, epigenetics, escalation ladder, feminist movement, financial innovation, Frederick Winslow Taylor, George Akerlof, George Santayana, heat death of the universe, Herbert Marcuse, Herman Kahn, Ida Tarbell, invisible hand, Isaac Newton, joint-stock company, Joseph Schumpeter, Lewis Mumford, lifelogging, market bubble, market fundamentalism, Mikhail Gorbachev, moral hazard, Norman Mailer, plutocrats, prosperity theology / prosperity gospel / gospel of success, Ralph Waldo Emerson, RAND corporation, Robert Shiller, Ronald Reagan, scientific management, Scientific racism, short selling, Shoshana Zuboff, Silicon Valley, source of truth, South Sea Bubble, Stanislav Petrov, Steven Pinker, Stewart Brand, Strategic Defense Initiative, surveillance capitalism, the market place, the scientific method, The Soul of a New Machine, The Wealth of Nations by Adam Smith, transcontinental railway, W. E. B. Du Bois, Whole Earth Catalog, zero-sum game

Selling accelerated on August 24 when the Ohio Life Insurance and Trust Company, a bank with large mortgage holdings, went belly-up, revealing not only the corrupt practices of its directors but also the dependence of the railroad industry and western land markets on bad loans, overextended credit, and poor management. By the end of September, all the banks in Philadelphia suspended specie payment, provoking bank runs across the nation. Through the fall, investors’ confidence plummeted. By early October, the historian James Huston writes, “men, especially in banking circles, seemed utterly possessed by some demonic force.” Since British and French capital had invested heavily in American land and railroads, the crisis soon spread across the Atlantic.


pages: 558 words: 168,179

Dark Money: The Hidden History of the Billionaires Behind the Rise of the Radical Right by Jane Mayer

Adam Curtis, affirmative action, Affordable Care Act / Obamacare, Alan Greenspan, American Legislative Exchange Council, An Inconvenient Truth, anti-communist, Bakken shale, bank run, battle of ideas, Berlin Wall, Capital in the Twenty-First Century by Thomas Piketty, carbon tax, carried interest, centre right, clean water, Climategate, Climatic Research Unit, collective bargaining, company town, corporate raider, crony capitalism, David Brooks, desegregation, disinformation, diversified portfolio, Donald Trump, energy security, estate planning, Fall of the Berlin Wall, financial engineering, George Gilder, high-speed rail, housing crisis, hydraulic fracturing, income inequality, independent contractor, Intergovernmental Panel on Climate Change (IPCC), invisible hand, job automation, low skilled workers, mandatory minimum, market fundamentalism, mass incarceration, military-industrial complex, Mont Pelerin Society, More Guns, Less Crime, multilevel marketing, Nate Silver, Neil Armstrong, New Journalism, obamacare, Occupy movement, offshore financial centre, oil shale / tar sands, oil shock, plutocrats, Powell Memorandum, Ralph Nader, Renaissance Technologies, road to serfdom, Robert Mercer, Ronald Reagan, school choice, school vouchers, Solyndra, The Bell Curve by Richard Herrnstein and Charles Murray, The Chicago School, the scientific method, University of East Anglia, Unsafe at Any Speed, War on Poverty, working poor

What transpired was a war council in which the twenty assembled chieftains coordinated their plans of action and divided up their territory. Kenneth Vogel, in Big Money, describes it as “the birthplace of a new Republican Party—one steered by just a handful of unelected operatives who answered only to the richest activists who funded them.” Two organizations soon emerged as virtual private banks run by these operatives. The first, American Crossroads and its 501(c)(4) wing, Crossroads GPS, was initiated by Rove. For funds, it drew heavily on his network of Texas tycoons. The second was Noble’s Center to Protect Patient Rights, which began to fill with donations from the Koch donor summits. Working closely with both was the U.S.


pages: 600 words: 165,682

The Accidental Empire: Israel and the Birth of the Settlements, 1967-1977 by Gershom Gorenberg

anti-communist, bank run, colonial rule, facts on the ground, Great Leap Forward, illegal immigration, MITM: man-in-the-middle, Mount Scopus, old-boy network, Suez crisis 1956, urban planning, Yom Kippur War

The evaluation was not changed by Nasser’s sudden death from a heart attack in late September, and his replacement by the little-known Anwar al-Sadat. The United States could keep Israel strong and wait for Egypt to come knocking for help.99 New diplomatic paths led to dead ends. Allon held another secret meeting with Hussein in the fall. In Allon’s account, he suggested as an interim arrangement that Israel institute autonomy in the West Bank, run from Amman via pro-Jordanian local Arabs. In an arrangement explicitly short of full peace, Hussein could live with the Allon Plan lines, while asserting his influence and reducing the PLO’s. The proposal was strictly Allon’s own, without the advance backing he had received from Eshkol. In his telling, “in a short time, I received a positive answer” from Hussein.


pages: 559 words: 169,094

The Unwinding: An Inner History of the New America by George Packer

"World Economic Forum" Davos, Affordable Care Act / Obamacare, Alan Greenspan, Apple's 1984 Super Bowl advert, bank run, Bear Stearns, big-box store, citizen journalism, clean tech, collateralized debt obligation, collective bargaining, company town, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, DeepMind, deindustrialization, diversified portfolio, East Village, El Camino Real, electricity market, Elon Musk, Fairchild Semiconductor, family office, financial engineering, financial independence, financial innovation, fixed income, Flash crash, food desert, gentrification, Glass-Steagall Act, global macro, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, high-speed rail, housing crisis, income inequality, independent contractor, informal economy, intentional community, Jane Jacobs, Larry Ellison, life extension, Long Term Capital Management, low skilled workers, Marc Andreessen, margin call, Mark Zuckerberg, market bubble, market fundamentalism, Maui Hawaii, Max Levchin, Menlo Park, military-industrial complex, Neal Stephenson, Neil Kinnock, new economy, New Journalism, obamacare, Occupy movement, off-the-grid, oil shock, PalmPilot, Patri Friedman, paypal mafia, peak oil, Peter Thiel, Ponzi scheme, proprietary trading, public intellectual, Richard Florida, Robert Bork, Ronald Reagan, Ronald Reagan: Tear down this wall, Savings and loan crisis, shareholder value, side project, Silicon Valley, Silicon Valley billionaire, Silicon Valley startup, single-payer health, smart grid, Snow Crash, Steve Jobs, strikebreaker, tech worker, The Death and Life of Great American Cities, the scientific method, too big to fail, union organizing, uptick rule, urban planning, vertical integration, We are the 99%, We wanted flying cars, instead we got 140 characters, white flight, white picket fence, zero-sum game

“I was going to expose these people who were taking advantage of the rest of us.” With two colleagues, Warren spent the 1980s doing her research. And that was when the first story she told, her own story, ran across the second, which went like this: Starting in 1792 with George Washington, there were financial crises every ten or fifteen years. Panics, bank runs, credit freezes, crashes, depressions. People lost their farms, families were wiped out. This went on for more than a hundred years, until the Great Depression, when Oklahoma turned to dust. “We can do better than this,” Americans said. “We don’t need to go back to the boom-and-bust cycle.” The Great Depression produced three regulations: The FDIC—your bank deposits were safe.


Debtor Nation: The History of America in Red Ink (Politics and Society in Modern America) by Louis Hyman

Alan Greenspan, asset-backed security, bank run, barriers to entry, Bretton Woods, business cycle, business logic, card file, central bank independence, computer age, corporate governance, credit crunch, declining real wages, deindustrialization, diversified portfolio, financial independence, financial innovation, fixed income, Gini coefficient, Glass-Steagall Act, Home mortgage interest deduction, housing crisis, income inequality, invisible hand, It's morning again in America, late fees, London Interbank Offered Rate, low interest rates, market fundamentalism, means of production, mortgage debt, mortgage tax deduction, p-value, pattern recognition, post-Fordism, profit maximization, profit motive, risk/return, Ronald Reagan, Savings and loan crisis, Silicon Valley, statistical model, Tax Reform Act of 1986, technological determinism, technology bubble, the built environment, transaction costs, union organizing, white flight, women in the workforce, working poor, zero-sum game

Small retailers, already facing difficulties, must have been dubious, despite the opportunity to lure customers back in. Such a novel program as the Charg-It system was not unique, but more of an incremental improvement over existing wartime department store practices that many banks were discovering.65 Biggin’s Charg-It system was not the only centralized, bank-run charge credit program independently created in the early 1950s, and all the rest relied on the same factors: offering department store credit techniques in exchange for hefty cuts of the revenue. Like the Charg-It plan, they were created for cash stores outside the downtown to compete with the large credit-granting department stores.66 These credit programs, though resulting from innovative bankers seizing the opportunities of the moment, only became possible because of the spread of department store credit practices.


pages: 565 words: 164,405

A Splendid Exchange: How Trade Shaped the World by William J. Bernstein

Admiral Zheng, asset allocation, bank run, Benoit Mandelbrot, British Empire, call centre, clean water, Columbian Exchange, Corn Laws, cotton gin, David Ricardo: comparative advantage, death from overwork, deindustrialization, Doha Development Round, domestication of the camel, double entry bookkeeping, Easter island, Eratosthenes, financial innovation, flying shuttle, Gini coefficient, God and Mammon, high-speed rail, ice-free Arctic, imperial preference, income inequality, intermodal, James Hargreaves, John Harrison: Longitude, Khyber Pass, low skilled workers, non-tariff barriers, Paul Samuelson, placebo effect, Port of Oakland, refrigerator car, Silicon Valley, South China Sea, South Sea Bubble, spice trade, spinning jenny, Steven Pinker, Suez canal 1869, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, trade liberalization, trade route, transatlantic slave trade, transcontinental railway, two and twenty, upwardly mobile, working poor, zero-sum game

The royal family and its favored merchants and captains earned fabulous wealth from the spice trade, but the nation itself was bankrupted by the staggering military expenses of a global empire. Portugal became known as the "Indies of the Genoese," chronically in debt and beholden to Italian merchants and German banks run by the Fugger family, the kingdom's major creditors." Even during the sixteenth century, Portugal was an impoverished nation of subsistence farmers with little excess capital or functioning credit markets with which to provision the expeditions with ships, sailors, silver, and trade goods. The Portuguese were so short of cash that often, having paid the inevitable price in men and ships, they lacked the silver and trade goods with which to purchase spices when their fleets finally arrived in the Indies.


pages: 855 words: 178,507

The Information: A History, a Theory, a Flood by James Gleick

Ada Lovelace, Alan Turing: On Computable Numbers, with an Application to the Entscheidungsproblem, Albert Einstein, AltaVista, bank run, bioinformatics, Bletchley Park, Brownian motion, butterfly effect, Charles Babbage, citation needed, classic study, Claude Shannon: information theory, clockwork universe, computer age, Computing Machinery and Intelligence, conceptual framework, crowdsourcing, death of newspapers, discovery of DNA, Donald Knuth, double helix, Douglas Hofstadter, en.wikipedia.org, Eratosthenes, Fellow of the Royal Society, Gregor Mendel, Gödel, Escher, Bach, Henri Poincaré, Honoré de Balzac, index card, informal economy, information retrieval, invention of the printing press, invention of writing, Isaac Newton, Jacquard loom, Jaron Lanier, jimmy wales, Johannes Kepler, John von Neumann, Joseph-Marie Jacquard, Lewis Mumford, lifelogging, Louis Daguerre, machine translation, Marshall McLuhan, Menlo Park, microbiome, Milgram experiment, Network effects, New Journalism, Norbert Wiener, Norman Macrae, On the Economy of Machinery and Manufactures, PageRank, pattern recognition, phenotype, Pierre-Simon Laplace, pre–internet, quantum cryptography, Ralph Waldo Emerson, RAND corporation, reversible computing, Richard Feynman, Rubik’s Cube, Simon Singh, Socratic dialogue, Stephen Hawking, Steven Pinker, stochastic process, talking drums, the High Line, The Wisdom of Crowds, transcontinental railway, Turing machine, Turing test, women in the workforce, yottabyte

For Dennett, the first four notes of Beethoven’s Fifth Symphony were “clearly” a meme, along with Homer’s Odyssey (or at least the idea of the Odyssey), the wheel, anti-Semitism, and writing.♦ “Memes have not yet found their Watson and Crick,” said Dawkins; “they even lack their Mendel.”♦ Yet here they are. As the arc of information flow bends toward ever greater connectivity, memes evolve faster and spread farther. Their presence is felt if not seen in herd behavior, bank runs, informational cascades, and financial bubbles. Diets rise and fall in popularity, their very names becoming catchphrases—the South Beach Diet and the Atkins Diet, the Scarsdale Diet, the Cookie Diet and the Drinking Man’s Diet all replicating according to a dynamic about which the science of nutrition has nothing to say.


pages: 526 words: 158,913

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

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

No longer the compliant bunch that rubber-stamped every one of Lewis’s initiatives, BofA’s directors discussed the situation at length, trying to figure out the best way forward. Lewis and their own lack of oversight had brought them to a difficult place, where the future of their own bank was in jeopardy. They were faced with a difficult choice. If BofA tried to bail out of the Merrill deal, the Charlotte bank could trigger a financial panic worse than the bank runs of the previous September, and expose BofA to a massive legal judgment brought by the estate of Merrill Lynch. If the directors accepted the government’s offer of assistance, they would be saddling their shareholders with Merrill Lynch’s black hole of losses. It fell to Meredith Spangler, the oldest member of the board, to ask Lewis the one hardheaded question that needed to be asked: Can you get this in writing?


pages: 566 words: 163,322

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

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

‡ In most of these cases, GDP growth was strong during the five-year period when credit was growing dangerously fast, so credit growth was the main reason the credit/GDP ratio was rising § Here I use financial crisis to mean a banking crisis as defined by Carmen Reinhart and Kenneth Rogoff in This Time Is Different (2009), which captures bank runs that force a government to close, merge, bail out, or take over one or more financial institutions. ¶ In twenty-six of the thirty cases, the average annual rate of growth fell over the next five years. The other four—Malaysia, Uruguay, Finland, and Norway—experienced a serious contraction in the economy, but the recovery came soon enough to lift the average rate of growth for the next five years


pages: 750 words: 169,026

A Line in the Sand: Britain, France and the Struggle for the Mastery of the Middle East by James Barr

bank run, British Empire, facts on the ground, friendly fire, illegal immigration, Khartoum Gordon, operational security, Scramble for Africa, short selling, éminence grise

When it became clear that they had no such plans, in 1940 Stern had passed a message into Vichy Syria, offering to fight for Germany if Hitler would support ‘the re-establishment of the Jewish state in its historic borders, on a national and totalitarian basis, allied to the German Reich’.⁵ Stern’s strange offer seems to have come to the attention of Colombani, who relayed it to the German embassy in Ankara. After waiting in vain for a reply from Hitler, at the start of 1942 Stern launched a short-lived campaign of violence by which he hoped to force the British government to give the Jews in Palestine their independence. Desperately short of money, his gang robbed a bank run by their ideological opposites, the Histadrut, but killed two Jewish bystanders. Two of the three Palestine policemen they murdered in a bombing days later were also Jewish. The Gang had quickly made a lot of enemies, and when the police offered a reward for information they soon received a tip-off about its members’ whereabouts.


pages: 741 words: 179,454

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

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

Despite minimal exposure to subprime mortgages, Northern Rock was unable to raise money as the securitization market seized up. In mid-September 2007, queues of panicked customers outside Northern Rock branches waited to withdraw deposits. In the Internet banking age, the signs of an old-fashioned bank run sealed Northern Rock’s fate. Adam Applegarth confessed to a UK parliamentary hearing that he understood: “the logic of somebody who has their life savings invested in an institution and who sees pictures of people queuing outside the door and they go join that queue.”22 Unable to issue commercial paper as holdings of toxic assets fell in value, conduits triggered parent bank credit lines, returning the assets to the mother ship.


pages: 616 words: 189,609

The Dream Machine: The Untold History of the Notorious V-22 Osprey by Richard Whittle

Ayatollah Khomeini, bank run, Boeing 747, Charles Lindbergh, digital map, Donald Trump, dual-use technology, helicopter parent, military-industrial complex, profit motive, Ronald Reagan, Rubik’s Cube, The Soul of a New Machine, VTOL

Bianca screeches, then yells at Wright: “GET OUT, LEFTY, WE GOT IT!” Wright jumps out of the cockpit and joins the troops on the runway behind his Osprey. At the other end of the airfield, a bright fire is burning, the source of the black smoke that made crew chief Banks think his Osprey was on fire. With the last of the infantry safely away, Banks runs out the rear ramp and stops. He takes a step toward the flames, then feels a hand grab his shoulder from behind. “Hey,” crew chief instructor Sharp tells Banks somberly, “it’s over.” With Wright out of the cockpit, Bianca takes a deep breath, then calmly reports over the radio: “This is Nighthawk Seven One.


pages: 602 words: 186,977

Collision of Empires: The War on the Eastern Front in 1914 by Prit Buttar

bank run, facts on the ground, the market place

Hindered by a mixture of bad weather and Russian resistance, it took Wieber’s cavalry, operating in conjunction with I Corps’ infantry, until early on 6 October to secure Sandomierz. By then the Russians had completed an orderly withdrawal across the river. Nor did the Austro-Hungarian V Corps enjoy better success on the other bank, running into the Russian XIV Corps in prepared positions. Although V Corps was able to advance, it could not interfere with the Russian withdrawal from Sandomierz. Dankl’s advance on either bank of the Vistula placed his army about two days’ march ahead of its neighbour to the south. Conrad moved what reserves he had to protect the exposed eastern flank, and ordered Dankl to concentrate on clearing the area where the San ran into the Vistula.


pages: 829 words: 187,394

The Price of Time: The Real Story of Interest by Edward Chancellor

"World Economic Forum" Davos, 3D printing, activist fund / activist shareholder / activist investor, Airbnb, Alan Greenspan, asset allocation, asset-backed security, assortative mating, autonomous vehicles, balance sheet recession, bank run, banking crisis, barriers to entry, Basel III, Bear Stearns, Ben Bernanke: helicopter money, Bernie Sanders, Big Tech, bitcoin, blockchain, bond market vigilante , bonus culture, book value, Bretton Woods, BRICs, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, cashless society, cloud computing, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, commodity super cycle, computer age, coronavirus, corporate governance, COVID-19, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cryptocurrency, currency peg, currency risk, David Graeber, debt deflation, deglobalization, delayed gratification, Deng Xiaoping, Detroit bankruptcy, distributed ledger, diversified portfolio, Dogecoin, Donald Trump, double entry bookkeeping, Elon Musk, equity risk premium, Ethereum, ethereum blockchain, eurozone crisis, everywhere but in the productivity statistics, Extinction Rebellion, fiat currency, financial engineering, financial innovation, financial intermediation, financial repression, fixed income, Flash crash, forward guidance, full employment, gig economy, Gini coefficient, Glass-Steagall Act, global reserve currency, global supply chain, Goodhart's law, Great Leap Forward, green new deal, Greenspan put, high net worth, high-speed rail, housing crisis, Hyman Minsky, implied volatility, income inequality, income per capita, inflation targeting, initial coin offering, intangible asset, Internet of things, inventory management, invisible hand, Japanese asset price bubble, Jean Tirole, Jeff Bezos, joint-stock company, Joseph Schumpeter, junk bonds, Kenneth Rogoff, land bank, large denomination, Les Trente Glorieuses, liquidity trap, lockdown, Long Term Capital Management, low interest rates, Lyft, manufacturing employment, margin call, Mark Spitznagel, market bubble, market clearing, market fundamentalism, Martin Wolf, mega-rich, megaproject, meme stock, Michael Milken, Minsky moment, Modern Monetary Theory, Mohammed Bouazizi, Money creation, money market fund, moral hazard, mortgage debt, negative equity, new economy, Northern Rock, offshore financial centre, operational security, Panopticon Jeremy Bentham, Paul Samuelson, payday loans, peer-to-peer lending, pensions crisis, Peter Thiel, Philip Mirowski, plutocrats, Ponzi scheme, price mechanism, price stability, quantitative easing, railway mania, reality distortion field, regulatory arbitrage, rent-seeking, reserve currency, ride hailing / ride sharing, risk free rate, risk tolerance, risk/return, road to serfdom, Robert Gordon, Robinhood: mobile stock trading app, Satoshi Nakamoto, Satyajit Das, Savings and loan crisis, savings glut, Second Machine Age, secular stagnation, self-driving car, shareholder value, Silicon Valley, Silicon Valley startup, South Sea Bubble, Stanford marshmallow experiment, Steve Jobs, stock buybacks, subprime mortgage crisis, Suez canal 1869, tech billionaire, The Great Moderation, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thorstein Veblen, Tim Haywood, time value of money, too big to fail, total factor productivity, trickle-down economics, tulip mania, Tyler Cowen, Uber and Lyft, Uber for X, uber lyft, Walter Mischel, WeWork, When a measure becomes a target, yield curve

The influx of foreign capital funded a current account deficit equivalent to a quarter of Icelandic GDP. fn2 On 7 August 2007, the French bank BNP Paribas suspended redemptions on three funds that owned US mortgage securities. Cut off from the international capital markets, Northern Rock, a mid-sized British bank, closed its doors a few months later. Northern Rock’s was the first English bank run since Overend Gurney’s collapse of 1866. (See Viral Acharya and Sascha Steffen, ‘The Banking Crisis as a Giant Carry Trade Gone Wrong’, VoxEu, 23 May 2013.) fn3 Jeremy Grantham, ‘Time to Wake Up: Days of Abundant Resources and Falling Prices are Over Forever’, GMO Quarterly Letter, April 2011.


pages: 772 words: 203,182

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

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

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.


Cultural Backlash: Trump, Brexit, and Authoritarian Populism by Pippa Norris, Ronald Inglehart

affirmative action, Affordable Care Act / Obamacare, bank run, banking crisis, Berlin Wall, Bernie Sanders, Black Lives Matter, Boris Johnson, Brexit referendum, Cass Sunstein, centre right, classic study, cognitive dissonance, conceptual framework, declining real wages, desegregation, digital divide, Donald Trump, eurozone crisis, fake news, Fall of the Berlin Wall, feminist movement, first-past-the-post, illegal immigration, immigration reform, income inequality, It's morning again in America, Jeremy Corbyn, job automation, knowledge economy, labor-force participation, land reform, liberal world order, longitudinal study, low skilled workers, machine readable, mass immigration, meta-analysis, obamacare, open borders, open economy, opioid epidemic / opioid crisis, Paris climate accords, post-industrial society, post-materialism, precariat, purchasing power parity, rising living standards, Ronald Reagan, sexual politics, Silicon Valley, statistical model, stem cell, Steve Bannon, War on Poverty, white flight, winner-take-all economy, women in the workforce, working-age population, World Values Survey, zero-sum game

The most extreme case is Greece; economic output has fallen by more than one-­fourth since 2010, about a quarter of the work force is unemployed, and about half of all bank loans are in default.48 The Greek economy still had not recovered by late 2017: per capita GDP Part II Authoritarian-Populist Values 151 was under $18,000, about half the level of its pre-­crisis peak in 2008. The dramatic shock to the Greek economy might explain the political backlash, including the rise of the ultranationalist Golden Dawn, which gained seats for the first time in 2012.49 Major financial crises (characterized by bank runs, sharp increases in default rates, bankruptcies, and large losses of capital) also seem to fuel support for political extremism; one longitudinal study examined parliamentary election results in 20 post-­industrial societies from 1870 to 2014, finding that far right parties experienced an average rise of about 30 percent in their vote share in the five years after a systemic financial crisis.50 By contrast, no equivalent gains were recorded for far left parties (and no similar effects were observed for recessions or economic downturns without a financial crash).


Switzerland by Damien Simonis, Sarah Johnstone, Nicola Williams

"World Economic Forum" Davos, Albert Einstein, bank run, car-free, clean water, financial engineering, Frank Gehry, Guggenheim Bilbao, haute couture, haute cuisine, indoor plumbing, Kickstarter, low cost airline, Nelson Mandela, offshore financial centre, the market place, trade route, young professional

If Switzerland’s largest metropolis once lived down to those dull descriptions, it certainly no longer does. Zürich is on the northern bank of Zürichsee (Lake Zurich) with the Limmat River running further north still, splitting the medieval city centre in two. The narrow streets of the Niederdorf quarter on the river’s eastern bank is crammed with noisy bars and restaurants; down the western bank runs the expensive Bahnhofstrasse and other shopping streets. The main Hauptbahnhof (train station) is at the northern end of Bahnfhofstrasse. Z Ü R I C H • • O r i e n t a t i o n 195 196 Z Ü R I C H C W ip Brü king cke er D Löwenbräu Areal st nen Sihlq uai r nst ne ser Ka Rigistra Universitätsstr str tr aus nto nss c mi Sih lh ö Rä os Qu ai rw eg he Bl eic Go eth e lke str ns tr Fa Kl gstr tr ns we Lö llee Ge ssn era Sih tr l ens ern Kas uai Se ln herq ffac Stau lzl ist r Ka tr Mythenquai ers Seestr 6 llik Zo 19 Feldeg La ng Ma tte nga sse tr rs ke r de rst str r rva eg est ine M str feld 4 tr To British Consulate (800m) See rstr Färbe20 ba chs str ch eu Kr estr eriv Bell Seefeldquai To Henry Moore's Sheep Sculpture (300m); Le Corbusier Pavilion & Heidi Weber Museum (600m); Chinese Garden (750m); Open-air Cinema (1.2km); Casino (1.8km) For r zst Seegartenstr str ch lstr ba rstr str To Camping Seebucht (3km) 33 21 fou 3 zbüh Du Zürichsee (Lake Zürich) 12 Kreu le üh 47 i qua Be hu lstr Le tte ns Ko Br rnha üc u ke s str str ter me so Ga r gst An Auf der Ma üc ke Lan str tr ns tte W erd Pla ltw Sechseläutenplatz M ess str str Ze 5 46 s tr Uto Sih l ch r lde Do To Dolder Grand Hotel (1.5km) tr Ma n ba ad ch str r aust To Blindekuh 23 (300m) To Zürichhorn Park (600m) Main The exhibitions at Zürich’s Design Museum (Map pp196-7; %043 446 67 67; www.museum-gestaltung .ch; Ausstellungstrasse 60; adult/concession Sfr7/4; h10am-8pm Tue-Thu, 10am-5pm Fri-Sun) are con- sistently impressive.


pages: 613 words: 200,826

Unreal Estate: Money, Ambition, and the Lust for Land in Los Angeles by Michael Gross

Albert Einstein, Ayatollah Khomeini, bank run, Bear Stearns, Bernie Madoff, California gold rush, Carl Icahn, clean water, Cornelius Vanderbilt, corporate raider, cotton gin, Donald Trump, estate planning, family office, financial engineering, financial independence, Henry Singleton, Irwin Jacobs, Joan Didion, junk bonds, Maui Hawaii, McMansion, Michael Milken, mortgage debt, Norman Mailer, offshore financial centre, oil rush, passive investing, pension reform, Ponzi scheme, Right to Buy, Robert Bork, Ronald Reagan, Silicon Valley, stem cell, Steve Jobs, Steve Wozniak, tech billionaire, Teledyne, The Predators' Ball, transcontinental railway, yellow journalism

Pillsbury bought a corner lot on Rodeo for $800 and built a seven-room house for another $2,000. There were still few cars; realtor Percy Clark used a horse-drawn surrey to show houses. His clerk, whose desk was conveniently situated in the Pacific Electric station, also sold rail tickets. Then it all ground to a halt. An attempt by Easterners to corner the copper market set off a bank run, the Panic of 1907 that paralyzed financial markets, leading to a severe national recession and the eventual creation of the Federal Reserve System. In Beverly Hills, despite the expenditure of about $1 million of the Rodeo syndicate’s money, the only tangible proofs of the community’s ability to survive were that lovely name, six houses, some bungalows for laborers, and those five roads “of splendid solidity and durability … absolutely noiseless and dustless,” laid through the bean fields planted in the Hammel and Denker era that still occupied most of the empty lots.


pages: 650 words: 204,878

Reminiscences of a Stock Operator by Edwin Lefèvre, William J. O'Neil

activist fund / activist shareholder / activist investor, bank run, behavioural economics, Black Monday: stock market crash in 1987, book value, British Empire, business process, buttonwood tree, buy and hold, buy the rumour, sell the news, clean water, Cornelius Vanderbilt, cotton gin, Credit Default Swap, Donald Trump, fiat currency, Ford Model T, gentleman farmer, Glass-Steagall Act, Hernando de Soto, margin call, Monroe Doctrine, new economy, pattern recognition, Ponzi scheme, price stability, refrigerator car, Reminiscences of a Stock Operator, reserve currency, short selling, short squeeze, technology bubble, tontine, trade route, transcontinental railway, traveling salesman, Upton Sinclair, yellow journalism

in newspapers controlled by the Rockefellers, and the calling of Heinze-Morse loans made by Rockefeller-influenced banks.23 Heinze and Morse were forced to sell into the declining market to protect their banks’ cash reserves. By October 16, United was selling at $10 a share. The scheme collapsed, pulling down the brokerage houses of Gross & Kleeburg and Otto Heinze & Company. Bank runs began on the three institutions whose managements and directors were involved with the corner attempt and who were forced to resign: Mercantile National Bank, New Amsterdam Bank, and the Bank of North America. The crisis burgeoned as depositor uncertainty spread. There was a run on the Knickerbocker Trust on Tuesday, October 22, after its president, Charles T.


pages: 801 words: 209,348

Americana: A 400-Year History of American Capitalism by Bhu Srinivasan

activist fund / activist shareholder / activist investor, American ideology, AOL-Time Warner, Apple II, Apple's 1984 Super Bowl advert, bank run, barriers to entry, Bear Stearns, Benchmark Capital, Berlin Wall, blue-collar work, Bob Noyce, Bonfire of the Vanities, British Empire, business cycle, buy and hold, California gold rush, Carl Icahn, Charles Lindbergh, collective bargaining, commoditize, Cornelius Vanderbilt, corporate raider, cotton gin, cuban missile crisis, Deng Xiaoping, diversification, diversified portfolio, Douglas Engelbart, Fairchild Semiconductor, financial innovation, fixed income, Ford Model T, Ford paid five dollars a day, global supply chain, Gordon Gekko, guns versus butter model, Haight Ashbury, hypertext link, Ida Tarbell, income inequality, information security, invisible hand, James Watt: steam engine, Jane Jacobs, Jeff Bezos, John Markoff, joint-stock company, joint-stock limited liability company, junk bonds, Kickstarter, laissez-faire capitalism, Louis Pasteur, Marc Andreessen, Menlo Park, Michael Milken, military-industrial complex, mortgage debt, mutually assured destruction, Norman Mailer, oil rush, peer-to-peer, pets.com, popular electronics, profit motive, punch-card reader, race to the bottom, refrigerator car, risk/return, Ronald Reagan, Sand Hill Road, self-driving car, shareholder value, side project, Silicon Valley, Silicon Valley startup, Steve Ballmer, Steve Jobs, Steve Wozniak, strikebreaker, Ted Nelson, The Death and Life of Great American Cities, the new new thing, The Predators' Ball, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, trade route, transcontinental railway, traveling salesman, Upton Sinclair, Vannevar Bush, Works Progress Administration, zero-sum game

Initially, foreigners felt safe keeping gold in American vaults due to the administration’s commitment. But in 1932 the American Treasury was no longer seen as a safe haven for gold—a shrinking economy with high unemployment and dislocation was a recipe for social unrest, or worse. Just as depositors looked to withdraw printed currency during local bank runs, central banks and large investors started a run on American gold. Now Hoover was stuck with the worst of both worlds: Escalating withdrawals of gold required even more monetary tightening, paying higher interest rates, to entice international depositors to not withdraw gold. And in an effort to signal greater fiscal responsibility, he raised income taxes in the summer of 1932.


Americana by Bhu Srinivasan

activist fund / activist shareholder / activist investor, American ideology, AOL-Time Warner, Apple II, Apple's 1984 Super Bowl advert, bank run, barriers to entry, Bear Stearns, Benchmark Capital, Berlin Wall, blue-collar work, Bob Noyce, Bonfire of the Vanities, British Empire, business cycle, buy and hold, California gold rush, Carl Icahn, Charles Lindbergh, collective bargaining, commoditize, Cornelius Vanderbilt, corporate raider, cotton gin, cuban missile crisis, Deng Xiaoping, diversification, diversified portfolio, Douglas Engelbart, Fairchild Semiconductor, financial innovation, fixed income, Ford Model T, Ford paid five dollars a day, global supply chain, Gordon Gekko, guns versus butter model, Haight Ashbury, hypertext link, Ida Tarbell, income inequality, information security, invisible hand, James Watt: steam engine, Jane Jacobs, Jeff Bezos, John Markoff, joint-stock company, joint-stock limited liability company, junk bonds, Kickstarter, laissez-faire capitalism, Louis Pasteur, Marc Andreessen, Menlo Park, Michael Milken, military-industrial complex, mortgage debt, mutually assured destruction, Norman Mailer, oil rush, peer-to-peer, pets.com, popular electronics, profit motive, punch-card reader, race to the bottom, refrigerator car, risk/return, Ronald Reagan, Sand Hill Road, self-driving car, shareholder value, side project, Silicon Valley, Silicon Valley startup, Steve Ballmer, Steve Jobs, Steve Wozniak, strikebreaker, Ted Nelson, The Death and Life of Great American Cities, the new new thing, The Predators' Ball, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, trade route, transcontinental railway, traveling salesman, Upton Sinclair, Vannevar Bush, Works Progress Administration, zero-sum game

Initially, foreigners felt safe keeping gold in American vaults due to the administration’s commitment. But in 1932 the American Treasury was no longer seen as a safe haven for gold—a shrinking economy with high unemployment and dislocation was a recipe for social unrest, or worse. Just as depositors looked to withdraw printed currency during local bank runs, central banks and large investors started a run on American gold. Now Hoover was stuck with the worst of both worlds: Escalating withdrawals of gold required even more monetary tightening, paying higher interest rates, to entice international depositors to not withdraw gold. And in an effort to signal greater fiscal responsibility, he raised income taxes in the summer of 1932.


pages: 669 words: 226,737

The True and Only Heaven: Progress and Its Critics by Christopher Lasch

affirmative action, agricultural Revolution, Alvin Toffler, Ayatollah Khomeini, bank run, British Empire, Charles Lindbergh, collective bargaining, colonial exploitation, company town, complexity theory, delayed gratification, desegregation, disinformation, equal pay for equal work, Frederick Winslow Taylor, full employment, Future Shock, gentrification, George Santayana, ghettoisation, Gunnar Myrdal, Herbert Marcuse, informal economy, invisible hand, job satisfaction, Joseph Schumpeter, land reform, Lewis Mumford, liberal capitalism, liberation theology, mass immigration, means of production, military-industrial complex, Norman Mailer, Panopticon Jeremy Bentham, planned obsolescence, post-industrial society, Post-Keynesian economics, profit motive, Ralph Waldo Emerson, Ronald Reagan, Rosa Parks, school vouchers, scientific management, scientific worldview, sexual politics, the market place, the scientific method, The Wealth of Nations by Adam Smith, Thorstein Veblen, urban renewal, Vilfredo Pareto, wage slave, War on Poverty, work culture , young professional

In taking the position that "there can be no such thing as an entirely free market," he acknowledged agreement "with some liberals." What he resented, he said, was liberal "compassion," which was "condescending" and "patronizing." The new right's constituency included many people who believed that "oil, steel, insurance, and the banks run this country," in the words of a member of the Italian-American Civil Rights League in Brooklyn. "I'd go for public ownership of the oil companies," this man said, "if I didn't think the national politicians were a bunch of thieves." A self-designated conservative Democrat told Jonathan Rieder, "It's not only welfare but the multinational corporations who are ripping us off, taking our jobs away and sending employment to the South and West.


pages: 850 words: 224,533

The Internationalists: How a Radical Plan to Outlaw War Remade the World by Oona A. Hathaway, Scott J. Shapiro

9 dash line, Albert Einstein, anti-globalists, bank run, Bartolomé de las Casas, battle of ideas, British Empire, clean water, colonial rule, continuation of politics by other means, David Ricardo: comparative advantage, Donald Trump, facts on the ground, failed state, false flag, gentleman farmer, humanitarian revolution, index card, long peace, Monroe Doctrine, new economy, off-the-grid, oil shale / tar sands, open economy, Peace of Westphalia, power law, public intellectual, Ronald Reagan, Scientific racism, Scramble for Africa, South China Sea, spice trade, Steven Pinker, The Wealth of Nations by Adam Smith, trade liberalization, uranium enrichment, zero-sum game

If the American economy happened to go down, it would take the German economy down even further—which it proceeded to do. When the U.S. stock market crashed on October 29, 1929, American banks called in their loans. Without foreign capital, Germany could neither finance its economic recovery nor make reparation payments. Bank runs led to the collapse of the German financial system. Whether any politician could have saved Germany from the ensuing calamity is doubtful, but if anyone could, it would have been Stresemann. The foreign minister for seven consecutive administrations, he was the only political figure with the stature to stabilize the country when the hurricane hit.


The Age of Turbulence: Adventures in a New World (Hardback) - Common by Alan Greenspan

addicted to oil, air freight, airline deregulation, Alan Greenspan, Albert Einstein, asset-backed security, bank run, Berlin Wall, Black Monday: stock market crash in 1987, Bretton Woods, business cycle, business process, buy and hold, call centre, capital controls, carbon tax, central bank independence, collateralized debt obligation, collective bargaining, compensation consultant, conceptual framework, Corn Laws, corporate governance, corporate raider, correlation coefficient, cotton gin, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cuban missile crisis, currency peg, currency risk, Deng Xiaoping, Dissolution of the Soviet Union, Doha Development Round, double entry bookkeeping, equity premium, everywhere but in the productivity statistics, Fall of the Berlin Wall, fiat currency, financial innovation, financial intermediation, full employment, Gini coefficient, Glass-Steagall Act, Hernando de Soto, income inequality, income per capita, information security, invisible hand, Joseph Schumpeter, junk bonds, labor-force participation, laissez-faire capitalism, land reform, Long Term Capital Management, low interest rates, Mahatma Gandhi, manufacturing employment, market bubble, means of production, Mikhail Gorbachev, moral hazard, mortgage debt, Myron Scholes, Nelson Mandela, new economy, North Sea oil, oil shock, open economy, open immigration, Pearl River Delta, pets.com, Potemkin village, price mechanism, price stability, Productivity paradox, profit maximization, purchasing power parity, random walk, Reminiscences of a Stock Operator, reserve currency, Right to Buy, risk tolerance, Robert Solow, Ronald Reagan, Savings and loan crisis, shareholder value, short selling, Silicon Valley, special economic zone, stock buybacks, stocks for the long run, Suez crisis 1956, the payments system, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, Tipper Gore, too big to fail, total factor productivity, trade liberalization, trade route, transaction costs, transcontinental railway, urban renewal, We are all Keynesians now, working-age population, Y2K, zero-sum game

T H E AGE OF T U R B U L E N C E ers' efforts to protect their reputations are important in all businesses but especially so in banking, where reputation is key to the overall soundness of a bank's operations. If a bank's loan portfolio or its employees are suspect, depositors disappear, often very quickly. But when the deposits are insured in some way, a run is less likely. Studying the damage caused by Depression-era bank runs had led me to conclude that, on balance, deposit insurance is a positive.* Nonetheless, the presence of a government financial safety net undoubtedly fosters "moral hazard," the term used in the insurance business to describe why customers take actions they would not so readily consider were they not insured against the adverse consequences of their behavior.


pages: 1,057 words: 239,915

The Deluge: The Great War, America and the Remaking of the Global Order, 1916-1931 by Adam Tooze

anti-communist, bank run, banking crisis, British Empire, centre right, collective bargaining, Corn Laws, credit crunch, failed state, fear of failure, first-past-the-post, floating exchange rates, Ford Model T, German hyperinflation, imperial preference, labour mobility, liberal world order, low interest rates, mass immigration, Mikhail Gorbachev, Monroe Doctrine, mutually assured destruction, negative equity, price stability, reserve currency, Right to Buy, Suez canal 1869, Suez crisis 1956, the payments system, trade route, transatlantic slave trade, union organizing, zero-sum game

Meanwhile, despite the urging of the White House, the Fed sacrificed the stability of the banking system to its pursuit of radical deflation. Following Britain’s departure from gold in September 1931, 522 American banks with deposits to the tune of $705 million failed. And even worse was to follow. In early February 1933 as America awaited a new President, a menacing bank run started in Louisiana. By 3 March it had reached the heart of the world financial order in New York. In desperation, New York State appealed to Washington for federal action. But Hoover’s presidential powers expired that day and Franklin Roosevelt, his successor, refused to cooperate. Before daybreak on 4 March 1933, with no guidance from the national government, the Governor of New York took the decision to shut the centre of the global financial system.


pages: 809 words: 237,921

The Narrow Corridor: States, Societies, and the Fate of Liberty by Daron Acemoglu, James A. Robinson

Affordable Care Act / Obamacare, agricultural Revolution, AltaVista, Andrei Shleifer, bank run, Berlin Wall, British Empire, California gold rush, central bank independence, centre right, classic study, collateralized debt obligation, collective bargaining, colonial rule, Computer Numeric Control, conceptual framework, Corn Laws, Cornelius Vanderbilt, corporate governance, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, Dava Sobel, David Ricardo: comparative advantage, Deng Xiaoping, discovery of the americas, double entry bookkeeping, Edward Snowden, en.wikipedia.org, equal pay for equal work, European colonialism, export processing zone, Ferguson, Missouri, financial deregulation, financial innovation, flying shuttle, Francis Fukuyama: the end of history, full employment, Glass-Steagall Act, Great Leap Forward, high-speed rail, income inequality, income per capita, industrial robot, information asymmetry, interest rate swap, invention of movable type, Isaac Newton, it's over 9,000, James Watt: steam engine, John Harrison: Longitude, joint-stock company, Kula ring, labor-force participation, land reform, Mahatma Gandhi, manufacturing employment, mass incarceration, Maui Hawaii, means of production, megacity, Mikhail Gorbachev, military-industrial complex, Nelson Mandela, obamacare, openstreetmap, out of africa, PageRank, pattern recognition, road to serfdom, Ronald Reagan, seminal paper, Skype, spinning jenny, Steven Pinker, the market place, transcontinental railway, War on Poverty, WikiLeaks

This was once again a response to fresh exigencies created by new economic conditions, this time in the form of the most severe economic downturn of modern times, the Great Depression. FDR’s New Deal initiated tighter regulation of banks (with the Emergency Banking Act of 1933, the Securities Act of 1933, and especially the founding of the Federal Deposit Insurance Corporation, which insured small deposits in order to prevent bank runs); a major expansion of government spending on public works with the establishment of the Public Works Administration and the Tennessee Valley Authority; a new program to prop up agricultural prices and farm incomes under the auspices of the newly founded Agricultural Adjustment Administration; and modern Social Security in 1935 and the Food Stamp Plan in 1939, which have remained as the mainstays of U.S. welfare policy.


pages: 851 words: 247,711

The Atlantic and Its Enemies: A History of the Cold War by Norman Stone

affirmative action, Alvin Toffler, Arthur Marwick, Ayatollah Khomeini, bank run, banking crisis, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Bonfire of the Vanities, Bretton Woods, British Empire, business cycle, central bank independence, Deng Xiaoping, desegregation, disinformation, Dissolution of the Soviet Union, European colonialism, facts on the ground, Fall of the Berlin Wall, financial deregulation, Francis Fukuyama: the end of history, Frederick Winslow Taylor, full employment, gentrification, Gunnar Myrdal, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, Herbert Marcuse, illegal immigration, income per capita, interchangeable parts, Jane Jacobs, Joseph Schumpeter, junk bonds, labour mobility, land reform, long peace, low interest rates, mass immigration, means of production, Michael Milken, Mikhail Gorbachev, military-industrial complex, Mitch Kapor, Money creation, new economy, Norman Mailer, North Sea oil, oil shock, Paul Samuelson, Phillips curve, Ponzi scheme, popular capitalism, price mechanism, price stability, RAND corporation, rent-seeking, Ronald Reagan, Savings and loan crisis, scientific management, Seymour Hersh, Silicon Valley, special drawing rights, Steve Jobs, Strategic Defense Initiative, strikebreaker, Suez crisis 1956, The Death and Life of Great American Cities, trade liberalization, trickle-down economics, V2 rocket, War on Poverty, Washington Consensus, Yom Kippur War, éminence grise

’ Mao thus represented the Party with at least some cohesion and force, whereas the Shanghai and southern components had been hopelessly weakened; later, he escaped to an even more remote area, where he set up the ‘Jiangxi soviet’, one of those Communist islands that appeared with all wartime resistance movements, complete with its own secret police, its own re-education arrangements and its own machinery for exploiting gullible foreigners. In any village there would be a confiscation committee, a recruitment committee, a ‘red curfew committee’ etc., and even a children’s corps. An economy developed, too. Curiously enough the area was a big source of tungsten, and exported it through a state bank run by Mao’s brother to Canton; peasant women were made to cut their hair short such that their hair-pins - their savings - could be taken in for war finance. There was, however, primary school education for the first time, and Mao gained a favourable press, with romantic American journalists such as Edgar Snow to be flattered or lied to (when the Sino-Soviet split occurred, he was refused a visa to Moscow).


EuroTragedy: A Drama in Nine Acts by Ashoka Mody

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

As a result, bonds purchased earlier through the QE program lose market value, creating immediate accounting losses for the ECB. The Governing Council wavers. Italian 446   e u r o t r a g e d y government bond prices fall further, and yields correspondingly creep up entering a danger zone; Italian bank stocks are battered, and the risk of bank runs increases.29 By now, Governing Council members are worried that the ECB’s and the Banca d’Italia’s exposure to the risk of financial defaults in Italy is growing too large and that if the Italian government—​unable to bear the pressure of higher interest rates and banking stress—​defaults on its debt, the accounting losses will become all too real and will need to be shared by all member states.


pages: 864 words: 272,918

Palo Alto: A History of California, Capitalism, and the World by Malcolm Harris

2021 United States Capitol attack, Aaron Swartz, affirmative action, air traffic controllers' union, Airbnb, Alan Greenspan, Alvin Toffler, Amazon Mechanical Turk, Amazon Web Services, Apple II, Apple's 1984 Super Bowl advert, back-to-the-land, bank run, Bear Stearns, Big Tech, Bill Gates: Altair 8800, Black Lives Matter, Bob Noyce, book scanning, British Empire, business climate, California gold rush, Cambridge Analytica, capital controls, Charles Lindbergh, classic study, cloud computing, collective bargaining, colonial exploitation, colonial rule, Colonization of Mars, commoditize, company town, computer age, conceptual framework, coronavirus, corporate personhood, COVID-19, cuban missile crisis, deindustrialization, Deng Xiaoping, desegregation, deskilling, digital map, double helix, Douglas Engelbart, Edward Snowden, Elon Musk, Erlich Bachman, estate planning, European colonialism, Fairchild Semiconductor, financial engineering, financial innovation, fixed income, Frederick Winslow Taylor, fulfillment center, future of work, Garrett Hardin, gentrification, George Floyd, ghettoisation, global value chain, Golden Gate Park, Google bus, Google Glasses, greed is good, hiring and firing, housing crisis, hydraulic fracturing, if you build it, they will come, illegal immigration, immigration reform, invisible hand, It's morning again in America, iterative process, Jeff Bezos, Joan Didion, John Markoff, joint-stock company, Jony Ive, Kevin Kelly, Kickstarter, knowledge worker, land reform, Larry Ellison, Lean Startup, legacy carrier, life extension, longitudinal study, low-wage service sector, Lyft, manufacturing employment, Marc Andreessen, Marc Benioff, Mark Zuckerberg, Marshall McLuhan, Max Levchin, means of production, Menlo Park, Metcalfe’s law, microdosing, Mikhail Gorbachev, military-industrial complex, Monroe Doctrine, Mont Pelerin Society, moral panic, mortgage tax deduction, Mother of all demos, move fast and break things, mutually assured destruction, new economy, Oculus Rift, off grid, oil shale / tar sands, PageRank, PalmPilot, passive income, Paul Graham, paypal mafia, Peter Thiel, pets.com, phenotype, pill mill, platform as a service, Ponzi scheme, popular electronics, power law, profit motive, race to the bottom, radical life extension, RAND corporation, Recombinant DNA, refrigerator car, Richard Florida, ride hailing / ride sharing, rising living standards, risk tolerance, Robert Bork, Robert Mercer, Robert Metcalfe, Ronald Reagan, Salesforce, San Francisco homelessness, Sand Hill Road, scientific management, semantic web, sexual politics, Sheryl Sandberg, Silicon Valley, Silicon Valley ideology, Silicon Valley startup, social web, SoftBank, software as a service, sovereign wealth fund, special economic zone, Stanford marshmallow experiment, Stanford prison experiment, stem cell, Steve Bannon, Steve Jobs, Steve Wozniak, Steven Levy, Stewart Brand, stock buybacks, strikebreaker, Suez canal 1869, super pumped, TaskRabbit, tech worker, Teledyne, telemarketer, the long tail, the new new thing, thinkpad, Thorstein Veblen, Tim Cook: Apple, Tony Fadell, too big to fail, Toyota Production System, Tragedy of the Commons, transcontinental railway, traumatic brain injury, Travis Kalanick, TSMC, Uber and Lyft, Uber for X, uber lyft, ubercab, union organizing, Upton Sinclair, upwardly mobile, urban decay, urban renewal, value engineering, Vannevar Bush, vertical integration, Vision Fund, W. E. B. Du Bois, War on Poverty, warehouse robotics, Wargames Reagan, Washington Consensus, white picket fence, William Shockley: the traitorous eight, women in the workforce, Y Combinator, Y2K, Yogi Berra, éminence grise

There’s nothing un-American about a crowd of veterans demanding that the government pay them early, but in 1932, in the midst of the Great Depression, when the Bonus Army—tens of thousands strong—showed up at the Capitol looking to redeem their service-bonus certificates for cash, Hoover saw a Bolshevik military plot. The certificates were earning interest until their 1945 redemption date, but the Depression left some people unable to wait, and the troops formed a motley crew, staging an event that was half protest and half bank run. The Chief didn’t see anyone worth negotiating with on the other side, and the administration convinced themselves that they were under attack by armed communist forces looking to repeat the storming of the Winter Palace in the Washington summer. In reality, Moscow was frustrated with the American communists for failing to take control of the campaign, but Hooverites prepared for the worst.30 Army chief of staff Douglas MacArthur was just as Red-scared as his boss, and together they saw this pitiful group of their countrymen camping in tents with their families as a godless revolutionary vanguard.


pages: 1,433 words: 315,911

The Vietnam War: An Intimate History by Geoffrey C. Ward, Ken Burns

anti-communist, bank run, Berlin Wall, Boeing 747, clean water, colonial rule, cuban missile crisis, desegregation, European colonialism, friendly fire, Haight Ashbury, independent contractor, land reform, Mahatma Gandhi, mutually assured destruction, Norman Mailer, RAND corporation, Ronald Reagan, Seymour Hersh, South China Sea, War on Poverty

Safer, Morley, 3.1, 3.2, 6.1, 7.1 Safire, William Saigon (Ho Chi Minh City), 1.1, 1.2, 1.3, 1.4, 1.5, 1.6, 1.7, 1.8, 1.9, 1.10, 1.11, 1.12, 1.13, 1.14, 1.15, 1.16, 1.17, 2.1, 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.8, 2.9, 2.10, 2.11, 3.1, 3.2, 3.3, 3.4, 3.5, 4.1, 4.2, 4.3, 5.1, 5.2, 5.3, 5.4, 6.1, 6.2, 7.1, 8.1, 8.2, 9.1, 9.2, 9.3, 10.1, 10.2, 10.3 bank run in bar girls and prostitutes in, 7.1, 7.2 black market in, 7.1, 7.2 Brinks Hotel bombing in, 3.1, 3.2 Buddhist protests in, 2.1, 2.2, 2.3, 4.1 Caravelle Hotel in Cercle Sportif in Citadel of, 1.1 criminal cartel in, 1.1, 1.2 evacuation of “high-risk” South Vietnamese allies from, 10.1, 10.2, 10.3, 10.4, 10.5, 10.1 fall of, itr.1, 8.1, 10.1, 10.2, 10.3, 10.4, 10.5, 10.6 final NVA advance on, 10.1, 10.2, 10.3, 10.4, 10.5 French-Vietnamese conflict in Mini-Tet attacks in, 6.1, 6.2, 6.3 1963 coup in political corruption in population explosion in Presidential Palace in, itr.1, 1.1, 2.1, 2.2, 6.1, 6.2, 6.3, 10.1, 10.2, 10.3, 10.4, 10.5 refugees in, 6.1, 6.2, 7.1, 7.2 renamed Ho Chi Minh City rioting in Tan Son Nhut airport of, see Tan Son Nhut Airport Tet Offensive in, 6.1, 6.2, 6.3, 6.4, 6.5, 6.6, 6.7, 6.8, 6.9, 6.10, 6.11, 6.12, 6.13, 6.14, 6.15, 10.1 U.S. embassy in, 1.1, 2.1, 2.2, 3.1, 5.1, 6.1, 6.2, 6.3 U.S. evacuation of, 10.1, 10.2, 10.3, 10.4, 10.5, 10.6, 10.7, 10.8, 10.9, 10.10, 10.11 Saigon Mission Council Saigon River, 1.1, 2.1, 4.1, 10.1, 10.2 Saigon Times Saigon University St.


The power broker : Robert Moses and the fall of New York by Caro, Robert A

Albert Einstein, American Society of Civil Engineers: Report Card, bank run, benefit corporation, British Empire, card file, centre right, East Village, Ford Model T, friendly fire, ghettoisation, high-speed rail, hiring and firing, housing crisis, Internet Archive, invisible hand, Isaac Newton, land reform, Lewis Mumford, Ralph Waldo Emerson, rent control, Right to Buy, scientific management, Southern State Parkway, The Death and Life of Great American Cities, Triangle Shirtwaist Factory, urban decay, urban planning, urban renewal, working poor, Works Progress Administration, young professional

The crucial point was not contested bv anyone. What Chase got in exchange is not known, although it continued to head syndicates—as it had in the past—that underwrote and purchased tens of millions of dollars in state bonds, immensely profitable to banks. Even such a bonus would probably not have persuaded the normal bank—run by a board of directors responsible to a multitude of stockholders —to abrogate its legal obligations, thereby leaving itself open to stockholder action. A bank controlled by a single family could do so, however. In the entire United States, only one bank large enough to be a trustee for $367,200,000 in bonds is still family controlled.

In the entire United States, only one bank large enough to be a trustee for $367,200,000 in bonds is still family controlled. What was necessary to remove Moses from power was a unique, singular concatenation of circumstances: that the Governor of New York be the one man uniquely beyond the reach of normal political influences, and that the trustee for Triborough's bonds be a bank run by the Governor's brother. Why did Moses choose to rest his future on Rockefeller's word? At least part of the answer is probably understood by the perceptive Duryea. who says he had little choice but to do so. "He didn't have much left to fight with any more," the Speaker says. And probably another part is provided by Shapiro, who, asked why his boss had not exacted a promise in writing, says: "I suppose because he couldn't really believe that they wouldn't want him in the picture at all.


pages: 1,590 words: 353,834

God's Bankers: A History of Money and Power at the Vatican by Gerald Posner

Albert Einstein, anti-communist, Ayatollah Khomeini, bank run, banking crisis, book value, Bretton Woods, central bank independence, centralized clearinghouse, centre right, credit crunch, disinformation, dividend-yielding stocks, European colonialism, forensic accounting, God and Mammon, Index librorum prohibitorum, Kevin Roose, Kickstarter, liberation theology, low interest rates, medical malpractice, Murano, Venice glass, offshore financial centre, oil shock, operation paperclip, power law, rent control, Ronald Reagan, Silicon Valley, WikiLeaks, Yom Kippur War

Tosches, Power on Earth, 120; Rupert Cornwell, God’s Banker, 50; memorandum of Paul Marcinkus to the Joint Investigating Committee, Vatican and Italy, into the Affairs of the IOR, quoted in Raw, The Moneychangers, 67; see also pages 66–71. 112 Unnamed Bank of Italy official quoted in Gurwin, The Calvi Affair, 17. When Cisalpine’s links to Calvi, Sindona, and the church later became public, the Nassau bank became a fulcrum of conspiracy theorists. One of the most often repeated is a tale in which Cisalpine laundered Mafia heroin profits through an Asian bank run by a CIA-linked Cuban expatriate. All that is missing is credible evidence. 113 Ann Crittenden, “Growing Bahamian Loan Activity by U.S. Banks Causes Concern,” The New York Times, March 3, 1977, 1. Penny Lernoux, in her 1984 book, In Banks We Trust, wrote: “Then, as now [1984], the Eurocurrency market was a giant floating crap game in which exchange dealers (mostly banks) bet on the rise or fall of national currencies.” 114 Sindona quoted in Stoler, Beaty, and Kalb, “The Great Vatican Bank Mystery.” 115 Handwritten notes by Philip Willan of audiotaped interviews between John Cornwell and Marcinkus, February 8, 1988, 7a, provided to author courtesy of Willan. 116 Marcinkus quoted in Raw, The Moneychangers, 71. 117 Raw, The Moneychangers, 8, 219; Cornwell, God’s Banker, 50. 118 Cornwell, God’s Banker, 50. 119 Willey, God’s Politician, 211. 120 Clara Calvi quoted in Gurwin, The Calvi Affair, 26. 121 Marcinkus also visited the following year.


Lonely Planet Ireland by Lonely Planet

bank run, banking crisis, Berlin Wall, Bernie Sanders, bike sharing, Bob Geldof, British Empire, carbon footprint, Celtic Tiger, classic study, country house hotel, credit crunch, Easter island, G4S, glass ceiling, global village, haute cuisine, hydraulic fracturing, Intergovernmental Panel on Climate Change (IPCC), Jacquard loom, Kickstarter, land reform, reserve currency, sustainable-tourism, three-masted sailing ship, young professional

The menu changes daily: smoked quail with celeriac remoulade, perhaps, or Castletownbere crab with spaghetti and herbs. Two-course dinners (€24) are served Tuesday to Thursday, and pre-6.30pm Friday and Saturday. ElectricMODERN IRISH€€ ( MAP GOOGLE MAP ; %021-422 2990; http://electriccork.ie; 41 South Mall; mains €14-27; hnoon-10pm; Wc) The market-sourced menu at this transformed art deco bank runs from seafood chowder to succulent steaks. There's a rustic Mediterranean-style fish bar too, but it's the big riverside deck and upstairs restaurant balcony with knock-out cathedral views that pull in the crowds – along with wines by the glass, and over two dozen varieties of beer. Strasbourg GooseIRISH€€ ( MAP GOOGLE MAP ; %021-427 9534; 17-18 French Church St; mains €15-24, 2-course set menu €21; h6-10pm Tue-Fri, 5-11pm Sat, 4-10pm Sun) There's a French accent alongside the broad Irish brogue here, with everything from prime Irish sirloin to Cork coast mussels given a Gallic twist, whether it be tarragon, a white-wine sauce or gratin potatoes.


From Peoples into Nations by John Connelly

Albert Einstein, anti-communist, bank run, Berlin Wall, Cass Sunstein, centre right, collective bargaining, colonial exploitation, colonial rule, crony capitalism, cuban missile crisis, disinformation, facts on the ground, Fall of the Berlin Wall, financial independence, German hyperinflation, Gini coefficient, Johann Wolfgang von Goethe, joint-stock company, laissez-faire capitalism, land bank, land reform, land tenure, liberal capitalism, means of production, Mikhail Gorbachev, moral hazard, oil shock, old-boy network, open borders, Panopticon Jeremy Bentham, Peace of Westphalia, profit motive, purchasing power parity, Ronald Reagan, strikebreaker, the built environment, The Chicago School, trade liberalization, Transnistria, union organizing, upwardly mobile, wikimedia commons, women in the workforce

“Four More Years,” The Economist, April 5, 2014, available at http://www.economist.com/news/europe/21600169-viktor-orban-heads-third-termand-wants-centralise-power-four-more-years. 87. See http://www.rferl.org/content/ukraine-hungarian-minority-autonomy/25412593.html (accessed December 3, 2016). 88. Frances Coppola, “The Bulgarian Game of Thrones,” Forbes, July 15, 2014. 89. See http://seekingalpha.com/article/2296535-bulgarias-strange-bank-run (accessed 3 December 2016). 90. Max Rivlin-Nadler, “Think the E.U. Is Great for Eastern Europe,” New Republic, December 16, 2013. Conclusion 1. “Nationalism may have stirred up passions in group situations … but its centrality often faded once an event had ended and more quotidian concerns took over.”


pages: 1,544 words: 391,691

Corporate Finance: Theory and Practice by Pierre Vernimmen, Pascal Quiry, Maurizio Dallocchio, Yann le Fur, Antonio Salvi

"Friedman doctrine" OR "shareholder theory", accelerated depreciation, accounting loophole / creative accounting, active measures, activist fund / activist shareholder / activist investor, AOL-Time Warner, ASML, asset light, bank run, barriers to entry, Basel III, Bear Stearns, Benoit Mandelbrot, bitcoin, Black Swan, Black-Scholes formula, blockchain, book value, business climate, business cycle, buy and hold, buy low sell high, capital asset pricing model, carried interest, collective bargaining, conceptual framework, corporate governance, correlation coefficient, credit crunch, Credit Default Swap, currency risk, delta neutral, dematerialisation, discounted cash flows, discrete time, disintermediation, diversification, diversified portfolio, Dutch auction, electricity market, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, eurozone crisis, financial engineering, financial innovation, fixed income, Flash crash, foreign exchange controls, German hyperinflation, Glass-Steagall Act, high net worth, impact investing, implied volatility, information asymmetry, intangible asset, interest rate swap, Internet of things, inventory management, invisible hand, joint-stock company, joint-stock limited liability company, junk bonds, Kickstarter, lateral thinking, London Interbank Offered Rate, low interest rates, mandelbrot fractal, margin call, means of production, money market fund, moral hazard, Myron Scholes, new economy, New Journalism, Northern Rock, performance metric, Potemkin village, quantitative trading / quantitative finance, random walk, Right to Buy, risk free rate, risk/return, shareholder value, short selling, Social Responsibility of Business Is to Increase Its Profits, sovereign wealth fund, Steve Jobs, stocks for the long run, supply-chain management, survivorship bias, The Myth of the Rational Market, time value of money, too big to fail, transaction costs, value at risk, vertical integration, volatility arbitrage, volatility smile, yield curve, zero-coupon bond, zero-sum game

They do so via a process called book-building, which occurs at the same time that information is sent out and the securities are marketed. Volumes and prices from potential investors are listed in the book. This helps determine if the transaction is feasible and, if so, at what price. Only after the book-building process do banks choose whether or not to underwrite the deal. Book-building allows the banks running the transaction to limit their risk, by assuring them that investors are willing to buy the securities. Book-building helps to determine, at a given moment, the best price for the seller and/or company and to allocate the securities on a more or less discretionary basis. In simpler transactions such as the placement of blocks or the issue of convertible bonds, the bank will almost always get feedback from a limited number of investors on their interest in the transaction and on the pricing.


pages: 1,199 words: 384,780

The system of the world by Neal Stephenson

bank run, British Empire, cellular automata, Edmond Halley, Fellow of the Royal Society, high net worth, Isaac Newton, James Watt: steam engine, joint-stock company, land bank, large denomination, MITM: man-in-the-middle, Neal Stephenson, place-making, Snow Crash, the market place, three-masted sailing ship, trade route, transatlantic slave trade

“He and his wife came here, what, five years ago, just as things began to go awry for the Whig Juncto. Oxford and Bolingbroke were plotting the Tory resurgence, getting the Queen’s ear—as I recall, there had been a run on the Bank of England, occasioned by rumors of a Jacobite uprising in Scotland.” “Is that what Braithwaite said when he showed up here penniless? That he’d been ruined in the bank run?” “He mentioned that the Mobb had rioted against the Bank.” “That it did. But this has little to do with Braithwaite. He is the sort of Englishman who is exported with great enthusiasm by his countrymen.” “There were rumors—” “Just enough, I am certain, to make him out as a saucy picaroon, and get him invited to dinner.”


Germany Travel Guide by Lonely Planet

Airbnb, Albert Einstein, bank run, Berlin Wall, bike sharing, Boeing 747, British Empire, call centre, capitalist realism, car-free, carbon footprint, centre right, company town, double helix, Dr. Strangelove, eurozone crisis, Fall of the Berlin Wall, Frank Gehry, gentrification, glass ceiling, Gregor Mendel, haute couture, haute cuisine, high-speed rail, Honoré de Balzac, Johann Wolfgang von Goethe, Johannes Kepler, Kickstarter, low cost airline, messenger bag, Mikhail Gorbachev, Neil Armstrong, New Urbanism, off-the-grid, oil shale / tar sands, Peace of Westphalia, Peter Eisenman, post-work, Prenzlauer Berg, retail therapy, ride hailing / ride sharing, Ronald Reagan, Ronald Reagan: Tear down this wall, sensible shoes, Skype, starchitect, three-masted sailing ship, trade route, upwardly mobile, urban planning, urban renewal, V2 rocket, white picket fence

In front is the Fischkastenbrunnen Offline map Google map (Marktplatz), a fountain where fishmongers kept their catch alive on market days. The 36m-high glass pyramid behind the Rathaus is the city’s main library, the Zentralbibliothek Offline map Google map (Marktplatz), designed by Gottfried Böhm. Stadtmauer WALL Offline map Google map South of the Fischerviertel, along the Danube’s north bank, runs the red-brick Stadtmauer (city wall), the height of which was reduced in the 19th century after Napoleon decided that a heavily fortified Ulm was against his best interests. Walk it for fine views over the river, the Altstadt and the colourful tile-roofed Metzgerturm Offline map Google map (Butcher’s Tower; Click here), doing a Pisa by leaning 2m off-centre.


Germany by Andrea Schulte-Peevers

Albert Einstein, bank run, Berlin Wall, Boeing 747, call centre, capitalist realism, car-free, carbon footprint, centre right, company town, computer age, credit crunch, Donald Trump, Fall of the Berlin Wall, Frank Gehry, gentrification, glass ceiling, Google Earth, haute couture, haute cuisine, Honoré de Balzac, Johann Wolfgang von Goethe, Johannes Kepler, Kickstarter, low cost airline, messenger bag, Mikhail Gorbachev, New Urbanism, Peace of Westphalia, Peter Eisenman, place-making, post-work, Prenzlauer Berg, retail therapy, ride hailing / ride sharing, sensible shoes, Skype, trade route, urban planning, urban renewal, V2 rocket, white picket fence

Here beautifully restored half-timbered houses huddle along the two channels of the Blau River, traversed by footbridges. Harbouring art galleries, rustic restaurants, courtyards and the crookedest hotel in the world (Click here), the cobbled lanes are ideal for a leisurely saunter. South of the Fischerviertel, along the Danube’s north bank, runs the redbrick Stadtmauer (city wall), the height of which was reduced in the 19th century after Napoleon decided that a heavily fortified Ulm was against his best interests. Walk it for fine views over the river, the Altstadt and the colourful tile-roofed Metzgerturm (Butcher’s Tower), doing a Pisa by leaning 2m off-centre.


pages: 1,445 words: 469,426

The Prize: The Epic Quest for Oil, Money & Power by Daniel Yergin

anti-communist, Ascot racecourse, Ayatollah Khomeini, bank run, Berlin Wall, book value, British Empire, Carl Icahn, colonial exploitation, Columbine, continuation of politics by other means, cuban missile crisis, disinformation, do-ocracy, energy security, European colonialism, Exxon Valdez, financial independence, fudge factor, geopolitical risk, guns versus butter model, Ida Tarbell, informal economy, It's morning again in America, joint-stock company, junk bonds, land reform, liberal capitalism, managed futures, megacity, Michael Milken, Mikhail Gorbachev, Monroe Doctrine, new economy, North Sea oil, oil rush, oil shale / tar sands, oil shock, old-boy network, postnationalism / post nation state, price stability, RAND corporation, rent-seeking, Ronald Reagan, shareholder value, stock buybacks, Suez canal 1869, Suez crisis 1956, Thomas Malthus, tontine, vertical integration, Yom Kippur War

The Wall Street Journal tagged Continental Illinois as "the bank to beat." When oil prices started to weaken, it became clear that Continental Illinois, with its huge portfolio of energy loans from Penn Square and other sources, was walking on nothing more solid than thin air. The result, in 1984, was the largest bank run in the history of the world. All around the globe, other banks and companies yanked their money out. Continental Illinois' credit was no good. The integrity of the entire interconnected banking system was now in jeopardy. The Federal government intervened, with a huge bail-out—$5.5 billion of new capital, $8 billion in emergency loans, and, of course, new management.


Engineering Security by Peter Gutmann

active measures, address space layout randomization, air gap, algorithmic trading, Amazon Web Services, Asperger Syndrome, bank run, barriers to entry, bitcoin, Brian Krebs, business process, call centre, card file, cloud computing, cognitive bias, cognitive dissonance, cognitive load, combinatorial explosion, Credit Default Swap, crowdsourcing, cryptocurrency, Daniel Kahneman / Amos Tversky, Debian, domain-specific language, Donald Davies, Donald Knuth, double helix, Dr. Strangelove, Dunning–Kruger effect, en.wikipedia.org, endowment effect, false flag, fault tolerance, Firefox, fundamental attribution error, George Akerlof, glass ceiling, GnuPG, Google Chrome, Hacker News, information security, iterative process, Jacob Appelbaum, Jane Jacobs, Jeff Bezos, John Conway, John Gilmore, John Markoff, John von Neumann, Ken Thompson, Kickstarter, lake wobegon effect, Laplace demon, linear programming, litecoin, load shedding, MITM: man-in-the-middle, Multics, Network effects, nocebo, operational security, Paradox of Choice, Parkinson's law, pattern recognition, peer-to-peer, Pierre-Simon Laplace, place-making, post-materialism, QR code, quantum cryptography, race to the bottom, random walk, recommendation engine, RFID, risk tolerance, Robert Metcalfe, rolling blackouts, Ruby on Rails, Sapir-Whorf hypothesis, Satoshi Nakamoto, security theater, semantic web, seminal paper, Skype, slashdot, smart meter, social intelligence, speech recognition, SQL injection, statistical model, Steve Jobs, Steven Pinker, Stuxnet, sunk-cost fallacy, supply-chain attack, telemarketer, text mining, the built environment, The Death and Life of Great American Cities, The Market for Lemons, the payments system, Therac-25, too big to fail, Tragedy of the Commons, Turing complete, Turing machine, Turing test, Wayback Machine, web application, web of trust, x509 certificate, Y2K, zero day, Zimmermann PGP

Despite repeated requests to Bank of America to fix this (it’s a legitimate site, it just carries all the hallmarks of a phishing site), the problem has been present since at least 2003 [142] and was still active as of the time of writing. Some legitimate sites are so hard to verify that even experts have problems. For example a web site for NatWest (a large UK bank) run by the Royal Bank of Scotland only barely scraped through verification as a non-phishing site by the checkers at PhishTank, a phish-tracking site [143]. In another case reported at a security conference, banking security people were taken in by a phishing version of their own site! Specifically, they knew that the site they were looking at was a phishing site because they’d been told about it and could verify that traffic from it wasn’t coming back to their servers, but it took them quite some time to figure out how it was being done.