banking crisis

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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

Goldgar, Tulipmania. 41. Garber, ‘Tulipmania’; Garber, Famous First Bubbles. 42. Thompson, ‘The tulipmania’. 43. Mackay, Memoirs of Extraordinary Popular Delusions, 2nd edition. 44. Goldgar, Tulipmania, p. 6. 45. Goldgar, Tulipmania, pp. 6–7. 46. Englund, ‘The Swedish banking crisis’; Moe, Solheim and Vale, ‘The Norwegian banking crisis’; Nyberg, ‘The Finnish banking crisis’; Radlet et al., ‘The East Asian financial crisis’. 226 NOTES TO PAGES 14–23 47. Radlet et al., ‘The East Asian financial crisis’; Mishkin, ‘Lessons from the Asian crisis’. 48. Radlet et al., ‘The East Asian financial crisis’, 38; Aumeboonsuke and Tangjitprom, ‘The performance of newly issued stocks in Thailand’. 49.

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Notes: The capital ratio equals the sum of capital plus shareholder reserves plus profit and loss reserves divided by the sum of total deposits and note issue. The liquidity ratio equals the sum of bank holdings of coins and bank notes divided by total assets. 58. Hickson and Turner, ‘Free banking gone awry’, 158. 59. Ellis, ‘The Australian banking crisis’; Cork, ‘The late Australian banking crisis’; Cannon, The Land Boomers, p. 109; Boehm, Prosperity and Depression, pp. 219, 252; Wood, The Commercial Bank of Australia, p. 143. 60. Boehm, Prosperity and Depression, pp. 216–17. 61. Butlin, Investment in Australian Economic Development, p. 264. 62. Boehm, Prosperity and Depression, p. 215. 63.

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LV, 1893, p. 902. Notably, among developed economies 100 years later, gambling expenditure per capita was highest in Australia – see Public Inquiry into the Australian Gambling Industry. 65. Cork, ‘The late Australian banking crisis’, 178. 66. Australasian Insurance and Banking Record, Vol. XIII, 1889, pp. 28–9; Cannon, The Land Boomers, p. 97. 67. Cork, ‘The late Australian banking crisis’, 179. See also Boehm, Prosperity and Depression, p. 224. 68. Australasian Insurance and Banking Record, Vol. XII, 1888, p. 351; Vol. XIII, 1889, pp. 28–9, 314. 69. House of Were, The History of J. B. Were and Son, pp. 125–6. 70.

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

Which aspect of a financial crisis is more important in determining the severity of a recession: the run-up in private-debt burdens or the banking crisis? Research by Oscar Jorda, Moritz Schularick, and Alan Taylor helps answer this question.19 They looked at over two hundred recessions in fourteen advanced countries between 1870 and 2008. They begin by confirming the basic Reinhart and Rogoff pattern: Banking-crisis recessions are much more severe than normal recessions. But Jorda, Schularick, and Taylor also find that banking-crisis recessions are preceded by a much larger increase in private debt than other recessions. In fact, the expansion in debt is five times as large before a banking-crisis recession. Also, banking-crisis recessions with low levels of private debt are similar to normal recessions.

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Also, banking-crisis recessions with low levels of private debt are similar to normal recessions. So, without elevated levels of debt, banking-crisis recessions are unexceptional. They also demonstrate that normal recessions with high private debt are more severe than other normal recessions. Even if there is no banking crisis, elevated levels of private debt make recessions worse. However, they show that the worst recessions include both high private debt and a banking crisis.20 The conclusion drawn by Jorda, Schularick, and Taylor from their analysis of a huge sample of recessions is direct: We document, to our knowledge for the first time, that throughout a century or more of modern economic history in advanced countries a close relationship has existed between the build-up of credit during an expansion and the severity of the subsequent recession. . . .

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While spending on other durable goods did not fall quite as early as residential investment, it still fell before the heart of the banking crisis. Compared to 2006, furniture purchases in 2007 were down 1.4 percent, and expenditures at home-improvement stores were down 4 percent. Spending on appliances was still up 2 percent in 2007, but the growth was significantly lower than the 7 percent growth in 2005 and 2006. Looking within the year of 2008, however, provides important insights. The heart of the banking crisis began in September 2008, when both Lehman Brothers and AIG collapsed. So by focusing on January through August, we can estimate the pre-banking-crisis spending decline in 2008. As a benchmark, we want to compare spending in January through August 2008 to that in January through August 2007, because retail sales are seasonal.

Global Financial Crisis by Noah Berlatsky

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

As the author reports, Lehman Brothers’ bankruptcy filings showed that its biggest bank loans came from what kind of banks? 3. According to Mandel, what are the three unsatisfactory options for solving the financial crisis? Michael Mandel, “A Simple Guide to the Banking Crisis,” Business Week, March 12, 2009. Copyright © 2009 by McGraw-Hill, Inc. Reproduced by permission. 172 Solutions to the Global Financial Crisis I don’t know why I called this a “a simple guide to the banking crisis.” Really, it’s the longest post I’ve written here. But here it is: Why is the banking crisis so hard to solve? We stood and watched while Hank Paulson and Ben Bernanke fumbled with their response in the fall. Now we are being treated to the distressing spectacle of Tim Geithner struggling as well to articulate a clear policy for dealing with zombie banks.

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Now we are being treated to the distressing spectacle of Tim Geithner struggling as well to articulate a clear policy for dealing with zombie banks. How come these smart and powerful men can’t get a handle on the problem? I want to lay out 5 simple propositions which will help you understand why the banking crisis is so intractable. Then I will explain what happens next. Proposition 1: The boom in the U.S. was funded almost totally by foreign money. This is absolutely the key point for understanding the current banking crisis. Historically, households have been the major source of capital for the U.S. economy. That’s certainly what I was taught in economics graduate school. The boom in the U.S. was funded almost totally by foreign money.

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Banks Can Survive the Crisis Without Nationalization But this is as far [as] Sweden’s experience of bank nationalization goes. And it is hardly a bed-time story for friends of bank nationalization today in the US or the UK [United Kingdom]. So—what are the lessons from the Swedish banking crisis for crisis responses today? One key element of the response to the banking crisis was to avoid nationalization. First, all the big banks had big credit losses, but they survived without being taken over by the government. Nor did they become zombie banks [banks which are bust, but which continue to operate solely because of government guarantees or support], the profitability of these banks returned to high levels only a few years after the crisis started.

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

Alan Greenspan, banking crisis, Bear Stearns, Berlin Wall, Big bang: deregulation of the City of London, Boris Johnson, Bretton Woods, Brexit referendum, British Empire, capital controls, congestion charging, deindustrialization, Donald Trump, Etonian, eurozone crisis, Fall of the Berlin Wall, financial engineering, financial innovation, financial thriller, floating exchange rates, foreign exchange controls, full employment, gig economy, inflation targeting, Jeremy Corbyn, Just-in-time delivery, light touch regulation, liquidity trap, low interest rates, Martin Wolf, military-industrial complex, moral hazard, negative equity, Neil Kinnock, Nixon triggered the end of the Bretton Woods system, non-tariff barriers, North Sea oil, Northern Rock, oil shock, Parkinson's law, Paul Samuelson, pre–internet, price mechanism, quantitative easing, Ronald Reagan, school vouchers, short selling, South Sea Bubble, Suez crisis 1956, The Chicago School, transaction costs, tulip mania, Winter of Discontent, Yom Kippur War

CRISIS 7 2007–09: FINANCIAL CRASH When I was on secondment to the Bank of England in 1976–77, the morale of Bank staff was still recovering from the shock of two events in the financial markets, one of which had occurred only a few weeks before I joined. This latter, in March 1976, was what was widely considered its inept handling of an interest rate reduction that briefly gave rise to an impression that it did not care about a fall in pound. The other was the ‘secondary banking crisis’ of 1973–75. The March 1976 episode figures in the chapter on the IMF crisis of that autumn. The secondary banking crisis, although it preceded the financial crisis of 2007–09 by several decades, nevertheless had a lasting impact on both the Treasury’s and the Bank’s attitudes towards financial supervision. Under a monetary regime known as competition and credit control, the Heath government and the Bank had bowed to the burgeoning movement in favour of giving freer rein to market forces, allowing greater competition for borrowers by banks and building societies – in other words, breaking up what was seen as a cartel.

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The episode has been extensively covered in some excellent accounts, such as Margaret Reid’s The Secondary Banking Crisis. In a nutshell, the policy encouraged a proliferation of dubious and risky lending institutions, which ended in tears – almost including the collapse of the mighty NatWest bank – and required a major rescue operation by the Bank of England. I found when I worked at the Bank that banking supervision was considered a dangerous career move. The feeling, encouraged by the fallout from the secondary banking crisis, was that banking supervisors were ‘on a hiding to nothing’. This view was reinforced in the 1980s by the failure of Johnson Matthey Bankers (JMB) in 1984 and of the corrupt Bank of Credit and Commerce International (BCCI) in July 1991.

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But it is an open question whether they were the truest cause of the banking crisis that began in the United States and spread further afield – though not, interestingly, to nearby Canada. I recall the first time I met Mark Carney, who subsequently became Governor of the Bank of England. It was in January 2009. We were the only occupants of a funicular lift, bringing us down to the main street in Davos – from, it has to be admitted, rather a good drinks party hosted by Barclays Bank. ‘Hi!’ said the other occupant. ‘I’m Mark Carney, Governor of the Bank of Canada.’ After I had duly introduced myself, he said, ‘We didn’t have a banking crisis in Canada.’ Canada’s experience was the exception to the rule that, in a globalised financial world, with sub-prime ‘paper’ turning up on bank balance sheets all over Europe, it was difficult to avoid being tainted by the crisis.

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

By the time the book is published this may no longer be the case, but in the meantime, these ideas will have wrought tremendous damage. Part of the reason for this is, as we shall see, ideological. But part of the reason these ideas are so powerful is very material. It has to do with how a “too big too fail” banking crisis in the United States became a “too big to bail” banking crisis in Europe, and how this drives us all down the road to austerity. We are, at best, still saving the banks that we started saving in 2008, especially in Europe. This book allowed me to work out why such bad ideas remain the governing ideas, for both ideological and material reasons.

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The cost of bailing, recapitalizing, and otherwise saving the global banking system has been, depending on, as we shall see later, how you count it, between 3 and 13 trillion dollars.9 Most of that has ended up on the balance sheets of governments as they absorb the costs of the bust, which is why we mistakenly call this a sovereign debt crisis when in fact it is a transmuted and well-camouflaged banking crisis. As we shall see in chapter 2, the US banking system, the origin of the global banking crisis, was deemed by the US government to be “too big to fail” and therefore wasn’t allowed to fail when it got into trouble in 2007–2008. The price of not allowing it to fail was to turn the Federal Reserve into a “bad bank” (chock-full of bad assets that were swapped for cash to keep lending going) while the federal government blew a hole in its finances as it plugged the gaps caused by lost revenues from the crash with deficit spending and debt issuance.

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There never was any general risk of the whole world turning into Greece. There is no risk of the United States ever going bust anytime soon. There is no crisis of sovereign debt caused by sovereigns’ spending unless you take account of actual spending and continuing liabilities caused by the rupture of national banking systems. What begins as a banking crisis ends with a banking crisis, even if it goes through the states’ accounts. But there is a politics of making it appear to be the states’ fault such that those who made the bust don’t have to pay for it. Austerity is not just the price of saving the banks. It’s the price that the banks want someone else to pay.

Anatomy of the Bear: Lessons From Wall Street's Four Great Bottoms by Russell Napier

Alan Greenspan, Albert Einstein, asset allocation, banking crisis, Bear Stearns, behavioural economics, book value, Bretton Woods, business cycle, buy and hold, collective bargaining, Columbine, cuban missile crisis, desegregation, diversified portfolio, fake news, financial engineering, floating exchange rates, Fractional reserve banking, full employment, Glass-Steagall Act, global macro, hindsight bias, Kickstarter, Long Term Capital Management, low interest rates, market bubble, Michael Milken, military-industrial complex, Money creation, mortgage tax deduction, Myron Scholes, new economy, Nixon triggered the end of the Bretton Woods system, oil shock, price stability, reserve currency, risk free rate, Robert Gordon, Robert Shiller, Ronald Reagan, short selling, stocks for the long run, yield curve, Yogi Berra

The pace of decline was considerably more rapid in factory payrolls, the wholesale price index and department store sales. In the overall economy, the pace accelerated markedly in the second half of 1930, influenced by the first banking crisis, which erupted in October of that year. The first half of 1931 saw the only marginal recovery in the economy during the 1929-32 contraction as GNP and real department-store sales both increased. This recovery was thrown off track by the second banking crisis, apparent domestically in March 1931 and intensified by the banking crisis in Europe, which hit the headlines in early May. In terms of the course of the recession, as measured by GNP in constant dollars, only 35% of what was to be the total contraction had occurred by the end of June 1931.

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Prices of corporate bonds had been rising slowly since the stock market crash of October 1929. However, with the onset of the banking crisis of October 1930, prices began to decline. While slow at first, this was the beginning of a new price trend that would not run its course until the summer of 1932. It exacerbated problems for bankers going in to 1931 as they were forced to mark these liquid investments to market. There were some signs of economic stability in early 1931, but this resulted in only a modest rally in the equity market. During the banking crisis, the DJIA reached a low of 157.5 on 16 December 1930. By 24 February 1931, it had risen 23% and was just 2.2% below the low of November 1929.

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Even at this stage, the magnitude of the decline in the index was only marginally in excess of the 1907 and 1919-21 bear markets. It was now that the second bank crisis hit. An investor committing funds to equities on 24 February 1931, almost 16 months after the October 1929 crash, would witness a 79% drop in the DJIA in the next 17 months. It was this period of decline that marked out the bear market as clearly different from anything before. Prior to the first banking crisis, long- and short-term interest rates had been declining, as had yields on Baa-rated bonds. However, a yield spread then began to open, based on the quality of corporate credits.

Crisis and Dollarization in Ecuador: Stability, Growth, and Social Equity by Paul Ely Beckerman, Andrés Solimano

banking crisis, banks create money, barriers to entry, business cycle, capital controls, Carmen Reinhart, carried interest, central bank independence, centre right, clean water, currency peg, declining real wages, disintermediation, financial intermediation, fixed income, floating exchange rates, Future Shock, Gini coefficient, income inequality, income per capita, labor-force participation, land reform, London Interbank Offered Rate, Mexican peso crisis / tequila crisis, microcredit, Money creation, money: store of value / unit of account / medium of exchange, offshore financial centre, old-boy network, open economy, pension reform, price stability, rent-seeking, school vouchers, seigniorage, trade liberalization, women in the workforce

However, as the commercial banking system was in such a fragile condition in Ecuador at the time of dollarization, a special contingency fund for banks in distress was created following official dollarization. From this perspective, this fund can be viewed something like a lender of last resort in the event of a banking crisis. Moreover, as has been the case in history, for example in the United States during episodes of banking crisis before 1913, the year the Federal Reserve System was created, the resolution of banking crisis or liquidity shocks was arranged by private financiers such as J. P. Morgan. In other cases, the resources for performing the functions of lender of last resort can come from the fiscal budget or from foreign borrowing.

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Most of the ingredients of high inflation and acute monetary instability were present: (a) a flight from national money and de-facto dollarization2 as nationals and foreigners in Ecuador lost all confidence in the capacity of the sucre to serve its store-of-value function, (b) large fiscal deficits, (c) a sharp contraction in real economic activity, and (d) a severe banking crisis.3 The increasingly cornered government, led by President Jamil Mahuad, a highly educated and intellectually sophisticated socialdemocrat, could not gather congressional support for passing crucial tax legislation and other measures to stabilize the economy. This situation, combined with the near paralysis of the international financial institutions based in Washington, helped bring about an economic meltdown manifested in very high inflation, a banking crisis, economic depression, and social disarray during most of 1999.

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Dollars at 1998 Prices), 1990–2000 ..............................39 2.9 Ecuador: Nonfinancial Public-Sector Overall and Primary Surplus (US$ Million at 1998 Prices and Exchange Rate), 1990–2000. ...............................................................................................42 2.10 Ecuador: Onshore Commercial-Bank Deposits (US$ Million) .......48 2.11 Ecuador: Onshore Commercial-Bank Loans Performing Normally and in Arrears ......................................................................49 2.12 Ecuador: Indicators of Macroeconomic Imbalance, 1988–2000 ......52 2.13 Ecuador: Consumer Prices, 1995–2000 ..............................................55 3.1 Ecuador: Monthly Trade-weighted Exchange-rate Competitiveness, December 1994–December 2001...............................................103 3.2 Ecuador: Monthly Increases in Consumer Prices, January 1999–December 2001............................................................................103 3.3 Ecuador: Consumer Prices and Weighted Trading-partner Prices at the Current Exchange Rate, December 1997–December 2001 ......................................................104 3.4 Ecuador: Quarterly Real GDP (1998 average =100), 1997.4–2001.4.........................................................................................109 CONTENTS 3.5 vii Ecuador: Quarterly Nonfinancial Public-sector Revenue (US$ million), 1998.2–2001.4 ..............................................................110 3.6 Ecuador: Quarterly Nonfinancial Public-sector Expenditure (US$ million), 1998.2–2001.4 ...............................................................111 3.7 Ecuador: Quarterly Performance of the Main Components of the Current Account of the Balance of Payments (US$ million), 1998.1–2001.4 .........................................................................................113 3.8 Ecuador: Monthly Merchandise Trade and Real-effective Exchange Rate (December 1996–October 2001)...............................117 4.1 Ecuador: Real Wage and Urban Poverty Trends (index, 1990 = 100) ..............................................................................134 4.2 Malnutrition Rates in Latin America ...............................................139 4.3 Malnutrition in Ecuador: Stunting (%) by Consumption Quintiles, 1998 and 1999 ....................................................................139 4.4 Malnutrition in Ecuador: Stunting (%) by Area and Region, 1998–2000 ..............................................................................................140 4.5 Ecuador, Jamaica, Honduras: Years of Educational Attainment by Age Cohort .....................................................................................141 4.6 Ecuador: Educational Attainment by Rural and Urban Areas (persons over 24 years old ) ..............................................................143 4.7 Ecuador: Gender Gap in Education .................................................144 4.8 Ecuador: Percentage of 18-Year-Olds Completing School ............145 4.9 Ecuador: Percent of Children Working, 1999 ..................................146 4.10 Ecuador: Social Spending per Capita, 1995–2001 (in US$) ...........148 5.1 Factors Affecting Vulnerability to Exogenous Shocks....................181 This page intentionally left blank Preface Understanding the nature of deep economic crises and social disarray and formulating adequate exchange rate and other policies for stabilization, growth, and social equity are topics of great importance in developing countries and emerging economies in the turbulent world of the early 21st century. The experience of Ecuador in the late 1990s and the early 21st century showcases a country with structural problems of low growth, regional divides, and social and ethnic fragmentation made more acute by a severe currency and banking crisis in the late 1990s. Ecuador’s response to the crisis centered on the adoption of foreign money—dollarization— as a last-resort measure to cope with total distrust in the national currency and domestic institutions after repeated cycles of failed stabilization and crisis. This book assesses several aspects of the Ecuadoran experience, including a historical analysis of the main features of the country’s economic development and the main political economy features that set the background for the most recent cycle of crisis and stabilization.

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

Central banks and governments duly supplied it, and the policy was endorsed by the summit of the Group of Twenty (G20), which included both industrialised and emerging market economies, in London in May 2009. The banking crisis itself could be said to have ended when the US Treasury and Federal Reserve announced on 7 May 2009 the results of the stress tests carried out on US banks to see if they were capable of withstanding the losses incurred under a range of adverse scenarios and the amount of new capital which those banks would be required to raise in the market or accept from the US government – $75 billion in total. By the summer of 2009, emerging market economies were starting to recover. But although the banking crisis had ended, the problems of the global economy remained.

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Eliot, The Rock, 1934 INTRODUCTION ‘It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity …’ Charles Dickens, A Tale of Two Cities The past twenty years in the modern world were indeed the best of times and the worst of times. It was a tale of two epochs – in the first growth and stability, followed in the second by the worst banking crisis the industrialised world has ever witnessed. Within the space of little more than a year, between August 2007 and October 2008, what had been viewed as the age of wisdom was now seen as the age of foolishness, and belief turned into incredulity. The largest banks in the biggest financial centres in the advanced world failed, triggering a worldwide collapse of confidence and bringing about the deepest recession since the 1930s.

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Their titles are numerous, but they share the same invisible subtitle: ‘how I saved the world’. So although in the interests of transparency I should make clear that I was an actor in the drama – Governor of the Bank of England for ten years between 2003 and 2013, during both the Great Stability, the banking crisis itself, the Great Recession that followed, and the start of the recovery – this is not a memoir of the crisis with revelations about private conversations and behind-the-scenes clashes. Of course, those happened – as in any walk of life. But who said what to whom and when can safely, and properly, be left to dispassionate and disinterested historians who can sift and weigh the evidence available to them after sufficient time has elapsed and all the relevant official and unofficial papers have been made available.

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

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

The fact that Europe’s bank stress tests lacked the backing of clear recapitalization facilities is highlighted by T. Santos, “El Diluvio: The Spanish Banking Crisis, 2008–2012,” manuscript (2017), Columbia Business School, Columbia University. 52. L. Thomas Jr., “Greek Bonds Lure Some, Despite Risk,” New York Times, September 28, 2011. 53. Bastasin, Saving Europe, 259. 54. Acharya and Steffen, “The Banking Crisis as a Giant Carry Trade Gone Wrong.” 55. B. H. Cohen, “How Have Banks Adjusted to Higher Capital Requirements?,” BIS Quarterly Review, 2013, 25. 56. Report of the Joint Committee of Inquiry into the Banking Crisis, Houses of the Oireachtas (Inquiries, Privileges and Procedures) Act, 2016. 57.

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But Europe’s chief problem was not the lack of a fiscal fire code. Its problem was the lack of a financial fire department.46 The failure of state building that mattered most was not fiscal union but the failure to build the capacity to handle a banking crisis. Coping with highly integrated financial capitalism requires a state that is disciplined, has the capacity to act and has the will to do so. Coping with a banking crisis on the scale that was brewing in Europe required a very capable state indeed. How badly such a facility was needed becomes clear only when we put together the local and global activities of Europe’s banks, to get a full view of their spectacularly overinflated growth.

…

Royo, “How Did the Spanish Financial System Survive the First Stage of the Global Crisis?,” Governance 26 (October 2013), 631–656; Santos, “Antes del Diluvio.” 42. A. Cárdenas, “The Spanish Savings Bank Crisis: History, Causes and Responses” (Working Paper 13-003, Universitat Oberta de Catalunya, 2013); and Santos, “Antes del Diluvio.” 43. T. Santos, “El Diluvio: The Spanish Banking Crisis, 2008–2012,” manuscript, Columbia Business School, Columbia University (2017). 44. Santos, “Antes del Diluvio.” 45. I. Jack, “Ireland: The Rise and the Crash,” New York Review of Books, November 11, 2010, reviewing F.

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

Ostensibly designed to force banks to invest safely, these rules have often been used to ensure that local borrowers, including the government, would get ample funding at good terms.25 The crises of the 1980s and 1990s, however, showed that investing at home is not the same as investing safely. For example, in Texas the S&L crisis of the late 1980s came sooner, beginning already in 1986, and was stronger than in most other states because Texan real estate and mortgage markets were uniquely affected by the oil price slump of 1985. In Sweden the banking crisis of 1992 was stronger than other countries’ banking crises in the early 1990s because, in trying to protect the exchange rate, the Swedish central bank pushed interest rates for overnight borrowing to a record 500 percent per year, after which there was a dramatic downturn in real estate markets.26 In the United States, such rules were also meant to prevent banks from becoming too large.27 By now, these rules have mostly been lifted.

…

Does this mean that banks would provide fewer benefits to the economy if they relied less on borrowing and used more equity? The answer is “No.” Banks have always been fragile and prone to trouble. The very word bankruptcy, common to many languages, alludes to banks.2 The history of banking has been full of crashes and crises. The period between 1940 and 1970, when there was hardly a banking crisis and few bank failures, was a remarkable exception.3 The incidence of crashes and crises since 1970 is not much different from past experience of financial instability, for example, in the nineteenth century.4 Banking experts often start from the observation that, with their reliance on deposits, banks have always been susceptible to runs, and they conclude that fragility in banking is inevitable.

…

Many countries have paid dearly for the successes of their banks. Encouraging the banks to fund the government is also not in the public interest if such funding endangers the banks. Such funding may be convenient for politicians who want to hide the costs of their policies, but if a government defaults on its debt and this is accompanied by a banking crisis, the consequences can be disastrous for many people.39 The need for effective regulation is acute. The large scale of bankers’ gambles and the high degree of interconnectedness in the financial system make that system very fragile. If some large and highly connected bank or other financial institution fails, it can destabilize the entire financial system and inflict enormous damage on all of us.

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

This also meant that banks could now access central bank money and cash from the money market rather than being dependent on the central bank itself to access central bank reserves and sterling. Most of all, despite its name, the Act marked the abolition of credit controls. A credit boom followed, fuelling a housing boom, which led to the inevitable banking crisis (see Box on the Quantity Theory of Credit in Section 5.6), known as the secondary banking crisis of 1974. Property prices collapsed as bank credit became tight, and banks had to be rescued by the Bank of England. Box 4: Wholesale money markets The term ‘money market’ covers the vast network of deals involving the lending and borrowing of liquid assets in a range of currencies, generally between financial institutions such as banks, as well as non-financial companies and the Government.

…

– in reference to the ‘credit crunch’. How can the Bank of England create £375 billion of new money through ‘quantitative easing’? And why has the injection of such a significant sum of money not helped the economy recover more quickly? Surely there are cheaper and more efficient ways to manage a banking crisis than to burden taxpayers and precipitate cutbacks in public expenditure? These questions are very important. They allude to a bigger question which is the main subject of this book: ‘How is money created and allocated in the UK?’ This seems like a question that should have a simple answer, but clear and easily accessible answers are hard to find in the public domain. 1.2.

…

Following the successful US example, the Government instead issued its own money (Bradbury bills, named after the then Secretary to the Treasury, John Bradbury) to raise finance for the war. This direct government money was not borrowed from any bank or investor through bond issuance and it proved successful in combating the acute banking crisis that followed Britain’s declaration of war on Germany in August 1914 and contributed to the war economy. As Davies observes, The cessation of internal gold circulation, then conceived simply as an urgent temporary expedient, thereafter became permanent. Thus ended without fuss or fanfare nearly 700 years of intermittent gold coinage circulation, including a century of the full gold standard, ousted ignominiously by bits of scrappy paper.93 After the war, countries attempted to reinstate the gold standard, believing this would restore stability to the international financial system.

The Limits of the Market: The Pendulum Between Government and Market by Paul de Grauwe, Anna Asbury

Alan Greenspan, banking crisis, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, conceptual framework, crony capitalism, Easter island, Erik Brynjolfsson, eurozone crisis, Honoré de Balzac, income inequality, income per capita, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kitchen Debate, means of production, Money creation, moral hazard, Paul Samuelson, price discrimination, price mechanism, profit motive, Robert Gordon, Robert Solow, Ronald Coase, Simon Kuznets, The Nature of the Firm, The Rise and Fall of American Growth, too big to fail, transaction costs, trickle-down economics, ultimatum game, very high income

The Second External Limit: The Financial Markets While it is evident that there are externalities when it comes to the environment, this is much less clear in the case of the financial  EXTERNAL LIMI TS OF CAPI TALISM markets. Nevertheless, these also exist and cause serious problems for the market system. We were recently forced to face this fact during the  banking crisis. The system suddenly reached its limits. It stood on the edge of the precipice. If there had been no government to bail out the banks at the time, we might have no market system at all in many countries by now. Particularly since the s, economists have adhered to an idealized image of financial markets, one similar to Adam Smith’s view of the economy in general.

…

Those who have made the wrong decisions or taken too many risks go under, leaving behind the strong, in a form of social Darwinism. This vision is extremely cynical, yet also naive. It is cynical because there are a great many people among the losers who have not made bad decisions nor run excessive risks, but who are dragged along in the downturn. During the banking crisis of , for example, many good banks were dragged along by the wave of mistrust which arose due to the unprecedented risks taken by a few, including some of the biggest names on the market. They were punished for sins they had not committed. Social Darwinism is in any case a naive vision. After all, the losers, a great many people during a financial crisis, will not just sit idle.

…

These high risks lead to large profits when everything is going well, and when things go badly, governments step in and the taxpayer must cover the losses. Perversely enough, the bank’s profits are privatized and its losses are nationalized. This is an unsustainable system which compels governments to step in. This is what happened after the  banking crisis. Governments were forced to help the losers (failing bankers, millions of people who became unemployed as a result of the crisis). In many countries they did this by raising spending, increasing budgetary deficits. They also forced the banking sector to introduce more regulations for risk control.

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

Federal Deposit Insurance Corporation, Information for Washington Mutual Bank, fdic.gov 10. Brown, Beyond the Crash, p. 64 11. Hugh Pym, Inside the Banking Crisis: The Untold Story, Bloomsbury Publishing, London, 2014, p. 70 12. Alistair Darling, Back from the Brink: 1000 Days at Number 11, Atlantic Books, London, 2011, p. 145 13. Ibid., p. 146 14. 2005 MOU, http://hm-treasury.gov.uk/6210.htm; Philip Augar, Reckless: The Rise and Fall of the City, Vintage, London, 2010, p. 50 15. Brown, Beyond the Crash, p. 79 16. Ibid., pp. 76–9 17. Pym, Inside the Banking Crisis, p. 97; Darling, Back from the Brink, p. 150 18. Iain Martin, Making it Happen: Fred Goodwin, RBS and the Men Who Blew up the British Economy, Simon & Schuster, London, 2013, p. 30 19.

…

Iain Martin, Making it Happen: Fred Goodwin, RBS and the Men Who Blew up the British Economy, Simon & Schuster, London, 2013, p. 30 19. Damian McBride quoted in Pym, Inside the Banking Crisis, p. 109 20. Darling, Back from the Brink, p. 150; Pym, Inside the Banking Crisis, p. 109 21. Andrew Lorenz, BZW: The First Ten Years, BZW, London, 1996, pp. 47–50 22. Ibid., pp. 176, 182–3. It was initially renamed BZW Barclays Global Investors. 23. Barclays Annual Report 2000, p. 146 24. Barclays Global Investors Equity Ownership Plan, excerpt from Barclays plc Form 20F, filed 24 March 2009 25. Brown, My Life, p. 405 26. Anthony Salz, ‘Salz Review: an independent review of Barclays’ business practices’, Barclays, London, 2013, pp. 215, 216, 223 27.

…

Barclays Annual Report 2009, p. 16 16. Barclays Annual Report 2010, p. 159 17. Barclays Capital Global Financial Services Conference, New York, 15 September 2009, Barclays.com 18. Adair Turner, ‘The Turner review: a regulatory response to the global banking crisis’, Mar 2009, fsa.gov.uk 19. House of Commons Treasury Committee, ‘Banking crisis: reforming corporate governance and pay in the City’, 12 May 2009, p. 3 20. Rachel Sylvester and Katherine Griffiths, ‘Lord Mandelson gets personal over banker’s pay’, The Times, 3 April 2010 21. ‘Lord Mandelson attacks Barclays head’, 3 April 2010, news.bbc.co.uk 22.

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

They become part of your ‘trading style’ and shape the person you are as a trader. I had several trading styles, certainly, but one of them was that I normally thought that short-term interest rates would go up rather than down. Having been trained in the aftermath of the Scandinavian banking crisis, and then having experienced the Japanese banking crisis, I always had an underlying fear that another banking crisis loomed around the corner. Consequently, I tended to ensure that my long-term trading position took that into account. This view often deviated from the market consensus and was sometimes both irrational and foolish. I did not, of course, predict the global financial crisis.

…

In that sense, trading was undoubtedly a job where I would be able to make use of my skills, while also having the opportunity to analyse international trends and events on a daily basis. However, when I returned to Sweden to finish my master’s degree in December 1992, there were not many jobs around in finance (or at all, to be honest). Sweden was recovering from a devastating banking crisis and the situation in Finland, my home country, was even worse. The Soviet Union, Finland’s biggest trading partner, had collapsed and a long era of austerity had arrived. Everyone, it seemed, had a hiring freeze, not least the banks, which were either bankrupt, had been nationalised, or were afraid of going bankrupt or being nationalised.

…

We, as the tentacle in the Nordic region, would now serve clients not only by quoting prices in bills and bonds, but also in FX and interest rate derivative instruments. Tomas was brought in from Hong Kong to run the dealing room, and extra expertise was flown in from London. A small army of traders and sales people was hired, mostly from Nordbanken, which had been nationalised following the Swedish banking crisis. I became part of the treasury desk, sitting bang in the middle of the trading floor. Surrounded by the bond and FX spot traders and their respective sales forces, our job was to take care of the funding of the operation as well as to trade a range of money market instruments. Uffe and Toby were experienced FX swap traders and took charge of the risk-taking activities, whereas Erik sorted out the funding of the bank.

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

The greatest danger often lurks in the most familiar parts of the financial system. Deposits are seen as a “good” source of funding, even though they can be taken out in an instant and get a giant subsidy in the form of deposit insurance. Property is regarded as a bread-and-butter banking activity but is the cause of banking crisis after banking crisis. Secured lending is seen as prudent, even though it can mean decisions are often made on the basis of the collateral being offered (a house, say) rather than the creditworthiness of the borrower (a borrower with no income and no job, say). If you look at the write-downs recorded during the crisis, where were they found?

…

See Credit-default swap Cecchetti, Stephen, 79 Church-tower principle, 207 Cigarettes, as means of payment, 5 Clark, Geoffrey Wilson, 144 Clearinghouse, 39 ClearStreet, 210 Clinical drug trials, indemnification of, xii–xiii Coates, John, 116 Code, simplification of, 63 Cohen, Ronald, 91–95, 97, 106, 108, 112 Coins, history of, 4 Collateral, xiv, 7, 38, 65, 76, 150, 177, 185, 204–206, 215 Collateralized-debt obligations (CDOs), 43, 234–235 Collective Health, 104 College graduates, earning power of, 170–171 Commenda, 7–8, 19 Commercial paper, 185 Commodity Futures Trading Commission, 54 CommonBond, 182, 184, 197 Confusion de Confusiónes (de la Vega), 24 Congressional Budget Office, 99, 169 Consumer Financial Protection Bureau overdraft fees and prepaid cards, concern about, 203–204 report on reverse mortgages, 141 survey on payday borrowing, 200 CoRI, 132 Corporate debt, in United States, 120 Corporate finance, 237–238 Correlation risk, 165 Cortisol and testosterone, effect of on risk appetite and aversion, 116 Counterparty risk, 22 Credit, industrialization of, 206 Credit Card Accountability, Responsibility, and Disclosure (Credit CARD) Act of 2009, 203 Credit cards, 203 Credit-default swap (CDS), 37, 64–65, 75, 124, 169, 238 Credit ratings, 24, 120–121, 233–236 Credit-reporting firms, 24 Credit risk, 200, 201, 237, 238 Credit scores, 47–49, 201, 216–217 Creditworthiness, xiv, 10, 12, 47, 121, 197, 202, 204, 216 Crowdcube, 152–155, 158–159, 162 Damelin, Errol, 208 Dark Ages, banking in, 11 Dark pools, 60 DCs (defined-contribution schemes), 129, 131 DE Shaw, 163 Debit cards, 204 Debt, 6, 7, 70, 149, 164 Decumulation, 138–139 Defined-benefit schemes, 129, 131 Defined-contribution (DC) schemes, 129, 131 Dependent variable, 201 Deposit insurance, 13, 43–44 Derivatives, 3, 9–10, 29–32, 38, 40 Desai, Samir, 189 Development-impact bonds, 103 Diabetes, cost of in United States, 102 Dimensional Fund Advisors, 129 Direct lending, 184 Discounting, 19 Disposition effect, 25 Diversification, 8, 12, 20, 117–119, 196, 236 Doorways to Dreams (D2D), 213–214 Dot-com boom, 148 Dow Jones Industrial Average, 40 Dow Jones Transportation Average, 40 Drug development, investment in, vii-viii, 114–115 Drug-development megafund adaptive market hypothesis and, 115–117 Alzheimer’s disease, 122 credit rating, importance of, 120–121 diversification and, 117, 119–120, 122 drug research, improvement of economics of, 114–115 financial engineering, need for, 119 guarantors for, 121 orphan diseases and, 118–119, 122 reactions to, 118 securitization and, 117–119, 122 Dumb money, comparison of to smart money, 155–158 Dun and Bradstreet, 24 Durbin Amendment (2010), 204 Dutch East India Company (VOC), 14–15, 38 E-Mini contracts, 54–55 Eaglewood Capital, 183–184 Ebola outbreak (2014), mortality rate of, 230 Ebrahimi, Rod, 210–211 Ecology, finance and, 113 Economist 2013 conference, xv on railways, 25 on worth of residential property, 70 Educational equity adverse selection in, 174, 175, 182 CareerConcept, 166 differences in funding rates, 176 enforceability, 177 in Germany, 166 Gu, Paul, 172, 175–176 income-share legislation, US Senate and, 172 information asymmetry, 174 Lumni, 165, 168, 175 Oregon, interest in income-share agreements, 172, 176 Pave, 166–168, 173, 175, 182 peer-to-peer insurance, 182 problems with, 167–168, 173–174 providers and recipients, contact between, 160, 175 risk-based pricing model, 176 student loans, 169–171 Upstart, 166–168, 173, 175, 182 Yale University and, 165 Efficient-market hypothesis, 115 Endogeneity, 239 Epidemiology, finance and, 113 Eqecat, 222 Equity, 7–8, 149–150, 186–187 Equity-crowdfunding in Britain, 154 Crowdcube, 152–155, 158–159, 162 Friendsurance, 182–183 Equity-crowdfunding in Britain (continued) herding, 159–160 social insurance, 182–183 Equity-derivatives contracts, 29 Equity-sharing, 7–8 Equity-to-assets ratio, 186 Eren, Selcuk, 73 Eroom’s law, 114 Essex County Council, 95 Eurobond market, 32 European Bank for Reconstruction and Development, 169 Exceedance-probability curve, 231–232, 232 figure 3 Exxon, 169 Facebook, 174 Fair, Bill, 47 False substitutes, 44 Fama, Eugene, 115 Fannie Mae, 48, 78, 85, 168 Farmer, Doyne, 60, 63 Farynor, Thomas, 16 FCIC (Financial Crisis Inquiry Commission), 50 Federal Deposit Insurance Corporation (FDIC), 186, 200 Federal Reserve Bank of New York, 170, 204, 205 Feynman, Richard, 115 Fibonacci (Leonardo of Pisa), 19 FICO score, 47–49 Films to rent, study of hyperbolic discounting, 133–134 Finance bailouts, 35–36 banks, purpose of, 11–14 collective-action problem in, 62 computerization of, 31–32 democratization of, 26–28 economic growth and, 33–34 fresh ideas, need for, xviii, 38–39, 80, 85–86 globalization and, 30, 225 heuristics, use of in, 45–50 illiteracy, financial, 134–135 importance of, 10 information, importance of, 10–11 inherent failings in, 241 misconceptions about, xiii–xvi panic, consequences of, 44 regulatory activity, results of, 33 risk assessment, 24, 45, 77–78 risk management, 55, 117–118, 123 as solution to real-world problems, 114 standardization, 39–41, 45, 47, 51 unconfirmed trades, backlog of, 64–65 use of catastrophe risk modeling in, 233–239 See also High-frequency trading (HFT); Internet Finance, history of bank, derivation of word, 12 Book of Calculation (Fibonacci), 19 call options, 10 Code of Hammurabi, 8 coins, 4 commodity forms of exchange, 4–5 credit and debt, 5–7 in Dark Ages, 11 democratization, 26–28 deposits, 6 derivatives, 29–32, 38 Dutch East India Company (VOC), 14–15, 38 early financial contracts, 5 early forms of finance, 3 equity contracts, 7–8 fire insurance, 16–17 first futures market, 29, 39–40 forward contracts, 38 in Greece, 11 industrialization and, 3, 27–28 inflation-protected bonds, 26 insurance, 8–10, 16–17, 20–22 interest, origin of, 5 in Italy, 9, 14 life annuities, 20–22 maritime trade and, 7–8, 14, 17, 23 payment, forms of, 4–5 put options, 9–10 railways, effect of on, 23–25 in Roman Empire, 7, 8, 11, 36 securities markets, 14 stock exchanges, 14, 24–25 Finance, innovation in absence of, xvi–xvii credit and debt, 5–7 derivatives, 9–10, 29–32 diffusion, pattern of, 45 drivers of, 22–26 equity, 7–8 importance of, 66, 242–243 insurance, 8–9, 16–17, 20–22 lessons from, 32–34 mathematical insights, 18–20 payment, forms of, 4–5 risks of, 145 stock exchanges, 14–16 Finance and the Good Society (Shiller), 242 Financial Crisis Inquiry Commission (FCIC), 50 Financial crisis of 2007–2008 causes of, xv, 34, 69 effects of, xx–xi future of finance, effect on, 243 mortgage debt, role of in, 69–70 new regulations since, 185, 187 Financial Times, quote from Chuck Prince in, 62 Fire insurance, early, 16–17 Fitch Ratings, 24 Flash Boys (Lewis), 57 Flash crash, 54–56, 63 Florida, hurricane damage in, 223, 225 Florida, new residents per day in, 225 Foenus nauticum, 8 Forward contracts, 38 Forward transactions, 15 France collapse of Mississippi scheme in, 36 eighteenth century life annuities in, 20–21 government spending in, 99 Freddie Mac, 48, 85 Fresno, California, social-impact bond pilot program in, 103–104 Friedman, Milton, 165 Friendsurance, 182–183 Fundamental sellers, 54–55 Funding Circle, 181–182, 189, 197 Futures, 29, 39–40 Galton Board, 17, 18 figure 1 Gaussian copula, 235 Geithner, Timothy, 64–65 Genentech, xii General Motors, bailout of, xi Geneva, Switzerland, annuity pools in, 21–22 Gennaioli, Nicola, 42, 44 Ginnie Mae, 168 Girouard, Dave, 166 Glaeser, Edward, 74 Globalization, finance and, 30, 225 Goldman Sachs, 61, 98, 156, 235 Google Trends, 218 Gorlin, Marc, 218 Government spending, rise in, 99–100 Governments, support for new financial products by, 168–169 Grameen Bank, 203 Greece, forerunners of banks in, 11 Greenspan, Alan, 236 Greenspan consensus, 236 Grillo, Baliano, 9 Gu, Paul, 162–164, 166, 172, 175–176 Guardian Maritime, 151 Haldane, Andy, 188 Halley, Edmund, 19–20 Hamilton, Alexander, 35–36 Hammurabi, Code of, 5, 8 Health conditions, SIB early detection programs for, 102–104 Health-impact bonds, 103–104 Hedge funds, 123, 158, 183 Hedging, 30–31, 54, 124, 129, 131, 156, 206, 227 Heiland, Frank, 73 Herding, 24, 159–160 Herengracht Canal properties, Amsterdam, real price level for, 74 Heuristics, 45–50 HFRX, 157–158 High-frequency trading (HFT) benefits of, 58 code, simplification of, 63 flash crash, 54–56 latency, attempts to lower, 53 pre-HFT era, 59–61 problems with, 56–58, 62–63 Hinrikus, Taavet, 190–191 HIV infection rates, SIB program for reduction of, 103 Holland, tulipmania in, 33, 36 Home equity, 139–140 Home-ownership rates, in United States, 85, 170 Homeless people, SIB program for, 96–97 Housing boom of mid-2000s, 148–149 Human capital contracts, 165, 167, 173–174, 176, 177 defined, 6 as illiquid asset, 177 Hurricane Andrew, effect of on insurers, 223–224, 225 Hurricane Hugo, 223 Hyperbolic discounting, 133–134, 211 IBM, 169 If You Don’t Let Us Dream, We Won’t Let You Sleep (drama), 111 IMF (International Monetary Fund), 125–126 Impact investing, 92 Implied volatility, 116 Impure altruism, 109–110 Income-share agreements, 167, 172–178 Independent variables, 201 Index funds, 40 India, CDS deals in, 37 India, social-impact bonds (SIBs) in, 103 Industrialization, effect of on finance, 3, 27–28 Inflation-protected Treasury bills, 131 Information asymmetry, 174 Innovator’s dilemma, 189 Instiglio, 103 Insurance, 8–10, 16–17, 142, 223–225 Insurance-linked securities, 222 Interbank markets, x Interest, origin of, 5 Interest-rate swaps, 29 International Maritime Bureau Piracy Reporting Centre, 151 International Monetary Fund (IMF), 125–126 International Swaps and Derivatives Association (ISDA), 40 Internet, role of in finance creditworthiness, determination of, 172–173, 202, 218 direct connection of suppliers and consumers, xviii, 32 equity crowdfunding, 152–155 income-share agreements, 172–173 ROSCAs, 210 small business loans, 216 speed and ease of borrowing, 189 student loans, 166–167 Intertemporal exchange, 6 Intuit, 218 Investment grade securities, 121 Ireland, banking crisis in, xiv–xv, 69 Isaac, Earl, 47 ISDA (International Swaps and Derivatives Association), 40 ISDA master agreement, 40 Israel, SIBs in, 97 Italy discrimination against female borrowers in, 208 financial liberalization and, 34 first securities markets in, 14 maritime trade partnerships in, 7–8 J. C. Flowers, 69, 81 Japan, banking crisis in, 75 Japan, financial innovation in, 27, 29, 39–40 Jha, Saumitra, 27 Jiménez-Martín, Sergi, 73 Job creation, young small firms and, 147–148 Joint-stock firms, 23 JPMorgan, 77, 169 Jump-to-default risk, 238 Käärmann, Kristo, 190 Kabbage, 218 Kahneman, Daniel, 47, 137 Kanjorski, Paul, 145 Kauffman Foundation, 158 Kennedy, John F., 32 Keys, Benjamin, 48 Kharroubi, Enisse, 79 Kickstarter, 172 King, Stephen, 99 Klein, David, 182 Krugman, Paul, xv Lahoud, Sal, 166 Lang, Luke, 153, 161–162 Laplanche, Renaud, 179, 184, 188, 190, 193–194, 196–197 Latency, 53 Law of large numbers, 17 Layering, 57 Left-digit bias, 46 Lehman Brothers, x, 44, 65 Lending direct, 84 marketplace, 184 payday, 200 relationship-based, 11, 151, 206–208 secured, xiv, 76 unsecured, 206 See also Loans; Peer-to-peer lending Lending Club, 172, 179–180, 182–184, 187, 189, 194–195, 197 Leonardo of Pisa (Fibonacci), 19 Lerner, Josh, 59 Lethal pandemic, risk-modeling for demographic profile, 230 exceedance-probability curve, 231–232, 232 figure 3 historical data, 228–229 infectiousness and virulence, 229–230 location of outbreak, 230–231 Leverage, 51, 70–71, 80, 186, 188 Leverage ratio, 76–77 Lewis, Michael, 57 Liber Abaci or Book of Calculation (Fibonacci), 19 LIBOR (London Interbank Offered Rate), 41 Liebman, Jeffrey, 98 Life expectancy government reaction to, 128–129 projections of, 124–127, 126 figure 2 ratio of young to older people, 127–128 Life-insurance policies, 142 Life-settlements industry, 142–143 Life table, 20 Limited liability, 212 Liquidity, 12–14, 39, 185–186 List, John, 109 The Little Book of Behavioral Investing (Montier), 156 Lo, Andrew, 113–115, 117–123 Loans low-documentation, 48–49 secured, 76 small business, 181, 216 student, 164, 166–167, 169–171, 182 syndicated, 41 Victory Loans, 28 See also Lending; Peer-to-Peer lending Logistic regression, 201 London, early fire insurance in, 16–17 London, Great Fire of, 16 London Interbank Offered Rate (LIBOR), 41 Long-Term Capital Management, 123 Longevity, betting on, 143–144 Loss aversion, 136 Lotteries, 212, 213 Low-documentation loans, 48–49 Lumni, 165, 168, 175 Lustgarten, Anders, 111 Lynn, Jeff, 160–161 Mack, John, 180 Mahwah, New Jersey, 52, 53 Marginal borrowers assessment of, 216–217 behavioral finance and, 208–214 industrialization of credit, 206 microfinance and, 203 savings schemes, 209–214 small businesses, 215–219 unsecured lending to, 206 Wonga, 203, 205, 208 Marginal borrowers (continued) ZestFinance, 199, 202, 205–206 Maritime piracy, solutions to, 151–152 Maritime trade, role of in history of finance, 3, 7–8, 14, 17, 23 Market makers, 15–16, 55 MarketInvoice, 195, 207, 217–218 Marketplace lending, 184 Markowitz, Harry, 118 Massachusetts, use of inflation-protected bonds in, 26 Massachusetts, use of social-impact bonds in, 98 Matching engine, 52 Maturity transformation, 12–13, 187–188, 193 McKinsey & Company, ix, 42 Mercator Advisory Group, 203 Merrill, Charles, 28 Merrill, Douglas, 199, 201 Merrill Lynch, 28 Merton, Robert, 31, 113–114, 123–124, 129–132, 142, 145 Mian, Atif, 204 Michigan, University of, financial survey by, 134–135 Microfinance, 203 Micropayment model, 217 Microwave technology, 53 The Million Adventure, 213–214 Minsky, Hyman, 42 Minsky moment, 42 Mississippi scheme, 36 Mitchell, Justin, 166–167 Momentum Ignition, 57 Monaco, modeling risk of earthquake in, 227 Money, history of, 4–5 Money illusion, 73–74 Money laundering, 192 Money-market funds, 43, 44 Monkeys, Yale University study of loss aversion with, 136 Montier, James, 156–157 Moody, John, 24 Moody’s, 24, 235 Moore’s law, 114 Morgan Stanley, 188 Mortgage-backed securities, 49, 233 Mortgage credit by ZIP code, study of, 204 Mortgage debt, role of in 2007–2008 crisis, 69–70 Mortgage products, unsound, 36–37 Mortgage securitization, 47 Multisystemic therapy, 96 Munnell, Alicia, 129 Naked credit-default swaps, 143 Nature Biotechnology, on drug-development megafunds, 118 “Neglected Risks, Financial Innovation and Financial Fragility” (Gennaioli, Shleifer, and Vishny), 42 Network effects, 181 New York, skyscraper craze in, 74–75 New York City, prisoner-rehabilitation program in, 108 New York Stock Exchange (NYSE), 31, 52, 53, 61, 64 New York Times, Merrill Lynch ad in, 28 Noncorrelated assets, 122 Nonprofits, growth of in United States, 105–106 Northern Rock, x NYMEX, 60 NYSE Euronext, 52 NYSE (New York Stock Exchange), 31, 52, 53, 61, 64 OECD (Organization for Economic Co-operation and Development), 128, 147 Oldfield, Sean, 67–68, 80–84 OnDeck, 216–218 One Service, 94–95, 105, 112 Operating expense ratio, 188–189 Options, 15, 124 Order-to-trade ratios, 63 Oregon, interest in income-share agreements, 172, 176 Organization for Economic Co-operation and Development (OECD), 128, 147 Overtrading, 24 Packard, Norman, 60 Pandit, Vikram, 184 Park, Sun Young, 233 Partnership mortgage, 81 Pasion, 11 Pave, 166–168, 173, 175, 182 Payday lending Consumer Financial Protection Bureau, survey on, 200 information on applicants, acquisition of, 202 underwriting of, 201 PayPal, 219 Peak child, 127 Peak risk, 228 Peer-to-peer lending advantages of, 187–189 auction system, 195 big investors in, 183 borrowers, assessment of, 197 in Britain, 181 commercial mortgages, 181 CommonBond, 182, 184, 197 consumer credit, 181 diversification, 196 explained, 180 Funding Circle, 181–182, 189, 197 investors in, 195 Lending Club, 179–180, 182–184, 187, 189, 194–195, 197 network effects, 181 ordinary savers and, 184 Prosper, 181, 187, 195 RateSetter, 181, 187, 196 Relendex, 181 risk management, 195–197 securitization, 183–184, 196 Peer-to-peer lending (continued) small business loans, 181 SoFi, 184 student loans, 182 Zopa, 181, 187, 188, 195 Pensions, cost of, 125–126 Perry, Rick, 142–143 Peterborough, England, social-impact bond pilot in, 90–92, 94–95, 104–105, 112 Petri, Tom, 172 Pharmaceuticals, decline of investment in, 114–115 Piracy Reporting Centre, International Maritime Bureau, 151 Polese, Kim, 210 Poor, Henry Varnum, 24 “Portfolio Selection” (Markowitz), 118 Prediction Company, 60–61 Preferred shares, 25 Prepaid cards, 203 Present value of cash flows, 19 Prime borrowers, 197 Prince, Chuck, 50–51, 62 Principal-agent problem, 8 Prisoner rehabilitation programs, 90–91, 94–95, 98, 108, 112 Private-equity firms, 69, 85, 91, 105, 107 Projection bias, 72–73 Property banking crises and, xiv, 69 banking mistakes involving, 75–80 behavioral biases and, 72–75 dangerous characteristics of, 70–72 fresh thinking, need for, xvii, 80 investors’ systematic errors in, 74–75 perception of as safe investment, 76, 80 Prosper, 181, 187, 195 Provisioning funds, 187 Put options, 9, 82 Quants, 19, 63, 113 QuickBooks, 218 Quote stuffing, 57 Raffray, André-François, 144 Railways, affect of on finance, 23–25 Randomized control trials (RCTs), 101 Raphoen, Christoffel, 15–16 Raphoen, Jan, 15–16 RateSetter, 181, 187, 196 RCTs (randomized control trials), 101 Ready for Zero, 210–211 Rectangularization, 125, 126 figure 2 Regulation NMS, 61 Reinhart, Carmen, 35 Reinsurance, 224 Relendex, 181 Rentes viagères, 20 Repurchase “repo” transactions, 15, 185 Research-backed obligations, 119 Reserve Primary Fund, 44 Retirement, funding for anchoring effect, 137–138 annuities, 139 auto-enrollment in pension schemes, 135 auto-escalation, 135–136 conventional funding, 127–128 decumulation, 138–139 government reaction to increased longevity, 128–129 home equity, 139–140 life expectancy, projections of, 124–127, 126 figure 2 life insurance policies, cash-surrender value of, 142 personal retirement savings, 128–129, 132–133 replacement rate, 125 reverse mortgage, 140–142 savings cues, experiment with, 137 SmartNest, 129–131 Reverse mortgages, 140–142 Risk-adjusted returns, 118 Risk appetite, 116 Risk assessment, 24, 45, 77–78, 208 Risk aversion, 116, 215 Risk-based capital, 77 Risk-based pricing model, 176 Risk management, 55, 117–118, 123, 195–197 Risk Management Solutions, 222 Risk sharing, 8, 82 Risk-transfer instrument, 226 Risk weights, 77–78 Rogoff, Kenneth, 35 “The Role of Government in Education” (Friedman), 165 Roman Empire business corporation in, 7 financial crisis in, 36 forerunners of banks in, 11 maritime insurance in, 8 Rotating Savings and Credit Associations (ROSCAs), 209–210 Roulette wheel, use of in experiment on anchoring, 138 Royal Bank of Scotland, 186 Rubio, Marco, 172 Russia, mortgage market in, 67 S-curve, in diffusion of innovations, 45 Salmon, Felix, 155 Samurai bonds, 27 Satsuma Rebellion (1877), 27 Sauter, George, 58 Save to Win, 214 Savings-and-loan crisis in US (1990s), 30 Savings cues, experiment with, 137 Scared Straight social program, 101 Scholes, Myron, 31, 123–124 Science, Technology, and Industry Scoreboard of OECD, 147 Securities and Exchange Commission (SEC), 54, 56, 57, 58, 64 Securities markets, 14 Securitization, xi, 20, 37–38, 117–122, 183–184, 196, 236 Seedrs, 160–161 Sellaband, 159 Shared equity, 80–84 Shared-equity mortgage, 84 Shepard, Chris, xii–xiii Shiller, Robert, xv–xvi, 242 Shleifer, Andrei, 42, 44 Short termism, 58 SIBs.

…

In This Time Is Different, their excellent survey of debt crises across the centuries, Carmen Reinhart and Kenneth Rogoff analyze episodes of banking crises. Such meltdowns are depressingly common in both developed and emerging economies: Britain, America, and France have experienced twelve, thirteen, and fifteen episodes of banking crisis, respectively, since 1800, for example.1 The first bailout in the United States happened way back in 1792, when a bubble and then a slump in the price of the country’s federal debt helped spark widespread panic. Alexander Hamilton, America’s first treasury secretary, was desperate to prevent severe damage to the country’s nascent financial system.

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

Private borrowing is affected too: Krugman envisages a crisis emerging specifically because firms have a high proportion of their debt in foreign currency (Krugman 2002), and Robert Wade’s analysis of the Icelandic crisis suggests that large borrowings by households and firms in foreign currency were crucial (Wade 2009). It is simply less risky for a government to borrow in its own currency. In the aftermath of the 2007–8 banking crisis, many states ran into debt problems, not just because of the costs of bailout but also (and mainly) because of the recession that was triggered by the credit squeeze the banking crisis caused. States fund their debt through taxation (but revenues are in decline) and bonds (which have been downgraded in many cases), and central banks (especially in the United States and the United Kingdom) have been purchasing bonds to sustain the market.

…

Faced with these realities, it is little wonder that a war has been declared on the banking system through political protests that have embraced as wide a spectrum of society as the original crisis itself. The political rhetoric is not simply about unequal wealth and income distribution. At a more fundamental level, and in a more precise way, it attacks the financial system that is responsible for perpetuating it. Of course, just calling this a banking crisis is too narrow a description. And to speak of banks as if they were all the same—to wit, part of an overarching Wall Street system—glosses over the complexity of financial institutions that do not operate in unison and are fragmented within themselves. Indeed, one could argue that divisions within banks, and their fragmented epistemic cultures, played a significant role in bringing the crisis about (MacKenzie 2011).

…

Since the early 1990s, however—and especially since the crisis—there has been a genuine surge of interest in the changing nature of money, partly because of the emergence of new forms such as local currencies and digital monies. Whereas the financial crisis appears to have fueled the enthusiasm of wider publics for new forms of money and credit, it has also underlined the argument that the role of states and banks in money’s social production may be undergoing a fundamental transformation. As the Cypriot banking crisis erupted during the early months of 2013, the value of Bitcoins (a currency that severs links with both the state and the banking system) rose sharply against both the euro and the U.S. dollar. There are many possible explanations for this, not least that we were simply witnessing a bubble. But the debates that have sprung up around the Bitcoin phenomenon are revealing because most of them are focused on the possibilities of developing a serious rival to state currency.

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 mega-banks in the Euro area core continued to expand, providing much of the funding for the housing price bubbles in the United States and financial bubbles in the Euro area periphery. When the bubbles burst the losses whipsawed back onto the core of the Euro area, widening the banking crisis across the North Atlantic. Indeed, every banking system in the Euro area experienced a crisis in 2008 except for Finland.1 The northern European mega-banks were thus major protagonists that helped drive the North Atlantic banking crisis rather than hapless victims, as they are often portrayed. How the northern European banks were allowed to expand so far, so fast, is a cautionary tale of unanticipated spillovers from financial regulations.

…

In many ways, IKB was the more important financial shock. Jochen Sanio, the lead German bank regulator, is reported to have said that the hurried weekend rescue involving a wide swathe of the German banking industry (an arrangement designed to circumvent EU rules on state subsidies) was needed to avoid the worst banking crisis since 1931.1 However, the symbolism of having part of the business of the largest French bank felled by turmoil in US markets has remained the more potent talisman of the wider impact of the North Atlantic crisis, a somewhat ironic outcome as BNP Paribas actually weathered the crisis relatively successfully.

…

In 2007, on the eve of the US subprime problems, the northern European banks (Euro area core plus UK) owned US assets worth over one-quarter of US output, three times the ratio of 2000. By this time, they also owned assets in the Euro area periphery of around half of the periphery output, double the 2000 value. The result was that when the bubble burst the Euro area suffered a generalized banking crisis. The twelve mega-banks identified in Chapter 1 (see Figure 3) drove these shifts in the Euro area banking system.32 Indeed, they accounted for the entire increase in bank assets over the 2000s as they expanded from one-third to one-half of the assets of the overall system through a combination of internal expansion, and mergers and acquisitions (Figure 23).

The Global Minotaur by Yanis Varoufakis, Paul Mason

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

When customers suspect this, they try to withdraw their money, at which point the bank collapses, before being brought back to ‘life’ by the Bank of England at a cost in excess of £15 billion. Rocked by this development, Bernanke drops US interest rates by another small amount, to 4.75 per cent, while the Bank of England pumps £10 billion worth of liquidity into the City of London. October – The banking crisis extends to the most esteemed Swiss financial institution, UBS, and the world takes notice. UBS announces the resignation of its chairman and CEO, who takes the blame for a loss of $3.4 billion from CDOs containing US sub-prime mortgages. Meanwhile, in the United States, Citigroup at first reveals a loss of $3.1 billion (again on mortgage-backed CDOs) – a figure that rises by another $5.9 billion within a few days.

…

To put it simply, imagine what would have happened in 2008 if, in the ‘dollar-zone’, each state (e.g. California or Nevada) had to bail out the banks registered on its soil and there was no way of financing public deficits from Washington! Within this institutionally problematic framework, the ECB and the European Commission struggled to contain the banking crisis. Between 2008 and 2009, they ‘socialized’ the banks’ losses and turned them into public debt. Meanwhile, the economy of Europe went into recession, as expected. In one year (2008–09) Germany’s GDP fell by 5 per cent, France’s by 2.6 per cent, Holland’s by 4 per cent, Sweden’s by 5.2 per cent, Ireland’s by 7.1 per cent, Finland’s by 7.8 per cent, Denmark’s by 4.9 per cent and Spain’s by 3.5 per cent.

…

The reason was, of course, that expensive new loans do not address the deficit states’ descent into bankruptcy, and they certainly do nothing for the faulty architecture, the noxious simulacrum, whose destructive potential was released the moment the Global Minotaur was wiped out by the Crash of 2008. If I am right, and the euro crisis is a systemic failure that began as a banking crisis, then Europe’s medicine is worse than the disease. It is like sending a weak swimmer out to sea to save a drowning bather: all you can expect is the sad sight of the two weak swimmers hanging onto one another for dear life, both sinking fast to the bottom of the sea. The two swimmers are, of course, the eurozone’s deficit states and Europe’s banking system.

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

Global Imbalances: Still Unresolved Vision and Leadership Are Still Lacking Notes Chapter 7: How It Plays Out The Business Cycle Debt: Public and Private 2011: The Starting Point 2012: Expect QE3 Impact on Asset Prices 2013–2014: Three Scenarios Impact on Asset Prices Conclusion Notes Chapter 8: Disaster Scenarios The Last Great Depression And This Time? Banking Crisis Protectionism Geopolitical Consequences Conclusion Note Chapter 9: The Policy Options Capitalism and the Laissez-Faire Method The State of Government Finances The Government’s Options American Solar Conclusion Notes Chapter 10: Fire and Ice, Inflation and Deflation Fire Ice Fisher’s Theory of Debt-Deflation Winners and Losers Ice Storm Fire Storm Wealth Preservation through Diversification Other Observations Concerning Asset Prices in the Age of Paper Money Protectionism and Inflation Consequences of Regulating Derivatives Conclusion Notes Conclusion About the Author Index Copyright © 2012 Richard Duncan.

…

Asset price bubbles formed and reshaped the structure of the economy. The NASDAQ bubble misallocated credit into the telecommunications and Internet sectors. When it popped, the Fed orchestrated the property bubble, which misallocated even more credit into housing. When the subprime loans could not be repaid, the losses produced a systemic banking crisis and forced the effective nationalization of Fannie Mae and Freddie Mac. Next, Bernanke cut interest rates to zero (see Exhibit 5.2), but that was not enough. It was no longer just a matter of ensuring that credit continued to expand. The credit market was imploding under the losses on defaulting and non-performing assets.

…

That ratio peaked at nearly 140 percent in 2007, just as Greenspan was expounding on the role of rising debt and the facts of life. Unfortunately, American households were incapable of repaying so much debt. They began defaulting on their mortgages in record numbers. The result was a systemic banking crisis and a severe global economic crisis that remains far from over. One of the facts of life that the chairman seems to have been unaware of is that debt has to be repaid. That means people must earn enough money to repay their debts. Between the time Greenspan became chairman until 2007, median income in the United States doubled (not adjusted for inflation), but the level of household sector debt increased five and a half times.

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

., Will the Eurozone Crack?, Centre for European Reform, September 2006, available at: www.cer.org.uk/sites/default/files/publications/attachments/pdf/2011/p_688_eurozone_crack_42-892.pdf 4Veron, N., Is Europe Ready for a Major Banking Crisis?, Bruegel, August 2007, available at: www.bruegel.org/download/parent/234-is-europe-ready-for-a-major-banking-crisis/file/659-is-europe-ready-for-a-major-banking-crisis-english/ 5EMU@10: Successes and challenges after ten years of Economic and Monetary Union, European Commission, available at: ec.europa.eu/economy_finance/publications/publication12682_en.pdf 6Delors, J., Report on economic and monetary union in the European Community, April 1989, available at: ec.europa.eu/economy_finance/publications/publication6161_en.pdf 5 Trichet’s test 1Article 125: “A Member State shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of another Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project.” 2Article 122.2: “Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, the Council, on a proposal from the Commission, may grant, under certain conditions, Union financial assistance to the Member State concerned.

…

Among members of “old” Europe it remained for the most part tiny. But by late 2007, partly as a result of the Commission’s efforts to chip away at internal barriers, there was enough cross-border expansion to prompt at least one economist, Nicolas Véron, to publish a paper for the Bruegel think-tank in Brussels titled: Is Europe Ready for a Major Banking Crisis?4 He noted that banks had become too large and diversified for national supervisors, even if they met in the then Committee of European Banking Supervisors (CEBS), to oversee properly. He said: The prudential framework for pan-European banks has become a maze of national authorities (51 are members of CEBS alone), EU-level committees (no fewer than nine) and bilateral arrangements (some 80 recently mentioned by European Commissioner Charlie McCreevy).

…

The deal would prompt ratings agencies to declare a temporary “selective default” (the EFSF would have to offer the ECB alternative collateral), but its voluntary nature ensured it would not count as a “credit event” that triggered payments of credit-default swaps, a form of insurance against sovereign defaults. However, the deal proved to be the worst of both worlds: the haircut was too small to turn around Greece’s public finances, but big enough to spread fear that other bonds were at risk. Markets had other reasons to worry. The original banking crisis had never been satisfactorily resolved; it had only been masked by the Greek turmoil and, to a great extent, worsened by the sovereign-debt crisis. The second round of bank stress tests in July turned out to be another half-baked job. Plainly, sovereign bonds could no longer be treated as risk-free.

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

Real history shows that real estate lending is in fact about as risky a thing as you can do with other people’s money. It has been the largest single cause of financial crises over the last forty years, from the U.S. banking crisis of 1974, triggered by collapsing real estate investment trusts, the collapse of the U.S. savings and loan industry in the 1980s, the collapse of the Japanese bubble economy in 1990, the Swedish and Finnish banking crises of the same period, and the Asian banking crisis of 1997. The only response to this inconvenient fact that the U.S. Congress seems capable of is to throw money at the collapsing U.S. housing market instead of simply letting the market clear at prices that attract buyers who can actually afford a house.

…

Japan’s world-beating companies were still selling their products to Europeans and Americans. Japan remained basically a rich country. The problem was there was no Dr. House at the MOF, at least not one to whom anyone would listen. Japan spent the years after the bubble burst in 1990 making a banking crisis into an economic catastrophe. At the time, American bankers, government officials, academics, and other experts told the Japanese they were doing all the wrong things and offered them alternatives. These mainly involved free market solutions for clearing the markets. Today, we appear hell bent on replicating Japan’s mistakes on a vastly larger scale.

…

If there was a general collapse of the banking system, something that has happened before in other countries like Mexico and Russia and partially happened here in 1930 to 1933, we the taxpayers would be on the hook for at least $4 trillion to give us back our own deposit money. This wouldn’t happen. Four trillion dollars is larger than the What Should Be Done? federal blow-out budget for 2009 and nearly a third of U.S. national income. The government simply doesn’t have and probably couldn’t get its hands on that kind of money should the current banking crisis go into free fall. The collapse of the payments system based on deposit money would mean no company could pay its bills or its meet payroll. Investors would be wiped out. All our paper wealth and savings would simply evaporate. We would revert to the cash, barter, and private bill of exchange economy that preceded all the real history in Chapter Four.

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

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

We do get to do some of the nice things, but not without some kind of anguish. I have to get my loyalty schemes and it goes down each time. We can no longer afford to go away. Our main summer holiday is five days in Majorca in the half-term, when the prices are lower [than in summer itself].’ Of course, a great deal of Deborah’s angst is bound up with the banking crisis and the recession that has followed. She agrees that she still leads a ‘privileged life’. But there is something about her predicament which is recognizable to the nation’s supposedly affluent classes, and exactly the same mixture of frustrated aspirations and threatened values is shared a good deal more widely.

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‘At the end of the month, what with rent and extortionate costs of travel, we have nothing left. In fact, less than nothing, which is a bit of a shocker.’[6] Shona Sibary used the same word describing the plight of her family when they had their home repossessed. As Deborah Lane implied, this feeling of being ‘stuck’ emerged before the banking crisis and the downturn. When the Department of Work and Pensions began investigating the so-called ‘squeezed middle’ in 2006, it found that — even then — a quarter of middle-income earners could not afford a week’s family holiday. Six per cent of them couldn’t afford to send children swimming once a month.

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‘The legal system let us down badly,’ says Stockwell now. ‘I understand why. I understand their need for the legal system to give some kind of finality. I understand the need to protect the Lloyd’s market so that it could get back on its feet. But nevertheless, allowing the establishment to cover up was what made the banking crisis possible.’ Here is the conundrum of the story, and the paradox for the middle classes today. They believe the great financial institutions are on their side, believe they understand the way the world works, pride themselves even on their ability to navigate through it — they had welcomed the deregulation of financial services and all the other changes since the 1980s.

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

This account is but a sampling of the crises that plagued the nineteenth century; there were many, many more: the panics of 1819, 1837, 1866, and 1893, to name a few. All had their unique qualities, but many shared a common set of features. Typically they began in more developed economies after excessive speculative lending and investments went bust, triggering a banking crisis. As the global economy sputtered and slowed, countries on the periphery that depended on exporting commodities saw their economies wither. Government revenue collapsed, leading some countries to default on their domestic debt, if not loans from overseas. In some cases, these defaults spurred additional meltdowns at the economic core, as investors in these emerging markets lost their shirts.

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But during the catastrophic crash of 1929, as the crisis spun out of control, the Fed stood idly by. Rather than pursuing an expansionary monetary policy, it tightened the reins, making a bad situation even worse. As a consequence, the money supply sharply contracted between 1929 and 1933, leading to a severe liquidity and credit crunch that turned a stock market bust into a banking crisis and eventually into a severe economic depression. The reaction of the rest of the federal government wasn’t much better. Andrew Mellon, Herbert Hoover’s Treasury secretary, believed a purge was necessary. Hoover described Mellon as a “leave-it-alone liquidationist” who had no pity for those caught in the crisis.

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In fact, a financial crisis engulfed Norway in the late 1980s and persisted into the early 1990s, when much of the banking system in both Finland and Sweden collapsed, a casualty of the collapse in Russian demand for Scandinavian goods after the fall of the Berlin Wall. In the United States in the late 1980s and early 1990s, savings and loan associations saw their loans go bad as the real estate bubble popped. Upwards of 1,600 banks eventually went under, and although this banking crisis was not as severe as the recent global financial meltdown, it nonetheless led to a credit crunch, a painful recession in 1990-91, and significant fiscal costs of nearly $200 billion (in 2009 dollars). While the United States did see volatility subside in the 1990s, countries in Latin America and Asia endured a number of crippling crises that centered on speculative booms and excessive debt in different sectors of the economy.

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

As the historians of the era have documented, more value was destroyed in the early 1930s than in the 1929 market crash. On March 4, 1933 President Franklin Roosevelt took office. Most of the nation’s banks were closed and panic ruled the streets of American cities and towns. New York, which held out almost a month after the bank crisis began in Michigan, declared a bank holiday on the morning of Inauguration Day. Terrified citizens were lined up outside New York banks as the new president took his oath of office. Ten days after FDR’s inauguration, he ordered an extended bank holiday. Even as the stronger banks in the nation gradually were allowed to re-open, the banks in Detroit remained closed.

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Almost a million individuals and businesses in Michigan were cut off from their funds for over a month and the larger depositors of the banks—including Henry Ford—were compelled to wait for the liquidation of the insolvent banks. Jesse Jones, the legendary chairman of the Reconstruction Finance Corporation under FDR, laid the blame for exacerbating the Banking Crisis of 1933 at the feet of Ford and Couzens: Detroit’s banking collapse may have been inevitable, the situation in the sorely stricken automobile industry being what it was, and the laws being what there were at the time; but the circumstances would have been less painful, the personal tragedies fewer, had not insurmountable difficulties been created by personal, industrial, and political hostilities at almost every step of our approach to the problem in February 1933.56 Malcolm Bingay, editor of the Detroit Free Press, interviewed Couzens several times following the crisis of 1933.

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The truth is that neither governing party really understood nor controlled the path of the economy during the Depression. The Democrats actually controlled Congress during Hoover’s presidency, so they cannot escape a fair share of responsibility for not foreseeing the catastrophe. FDR and the Democrats clearly worsened the banking crisis in 1932 by refusing to cooperate with the incumbent Hoover during the long transition period from November to March. The handoff of power between Hoover and FDR in March 1933 was painful, culminating with the oath of office as most of the nation’s banks stood closed. The transition in 1933 provided an especially fateful example of why the period of time from the election of a president to inauguration had to be shortened by the Twentieth Amendment to the Constitution that same year.

Are Chief Executives Overpaid? by Deborah Hargreaves

banking crisis, benefit corporation, Big bang: deregulation of the City of London, Black Monday: stock market crash in 1987, bonus culture, business climate, corporate governance, Donald Trump, G4S, Jeff Bezos, Jeremy Corbyn, late capitalism, loadsamoney, long term incentive plan, Mark Zuckerberg, Martin Wolf, opioid epidemic / opioid crisis, performance metric, principal–agent problem, profit maximization, Ronald Reagan, shareholder value, Snapchat, trade liberalization, trickle-down economics, wealth creators

However, when the stock market fall came, it turned out that this so-called portfolio insurance not only did not protect their investments from losses, but actually exacerbated the decline. I was to witness this exuberance and neglect of the dangers in the build-up to many more market downfalls – right up to the banking crisis of 2008. Greed has become one of the driving forces for many in our executive class, trumping long-term considerations about the future of their companies and the workforce, even overcoming fears about the fragility of capitalism itself. When there is the opportunity of enriching yourself to the extent that you and your family need never work again, who would not avail themselves of the option?

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So, for example, when business warned about the dangers of Brexit, they were ignored. And tellingly, when government called on retailers to warn about rising prices as a result of Scottish independence during the referendum in 2015, they were actively ridiculed. Trust in business plumbs the depths Trust in business has imploded since the banking crisis of 2008, according to Edelman, the public relations company, which has been mapping it for 18 years with its Trust Barometer.14 In recent years it has reported a crisis of trust around the world in business leaders, as well as politicians, media and non-governmental organizations. The Barometer has picked up unease among people all over the world who feel the system is biased against them and in favour of the rich and powerful.

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In the US, the top 1 per cent have seen their income grow twenty-five times more than the rest of the population since 2008 – taking some 85 per cent of the increase in income during that decade. In the UK, those households with income of £275,000 or more had quickly recovered from the slump brought on by the banking crisis, and their share of national income had returned to the level of pre-2007, according to research by the Resolution Foundation. But the other 99 per cent of UK households have not fared so well, with low- to middle-income households seeing their income fall. Another part of the debate on taxes is the need to close loopholes that enable the wealthy and big corporations to shelter their income in offshore jurisdictions.

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

After Alexander the Great seized and distributed large stocks of Persian gold and silver, prices are said to have risen and interest rates declined.53 Suetonius, in The Twelve Caesars, describes how, when the Emperor Augustus brought the treasure belonging to the kings of Egypt back to Rome, money became plentiful and interest rates fell from 6 to 4 per cent.54 After Augustus’ death, the Emperor Tiberius hoarded money, with the result that interest rates rose above the legal limit and a banking crisis erupted in AD 33. Tiberius then decided to lend out the imperial treasure free of interest to patrician families, which brought about an immediate decline in interest rates and an end to the crisis.55 His actions constituted the world’s first experience of quantitative easing.fn9 In short, the ancient history of interest provides no strong support for any particular view as to how the rate of interest is formed.

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It is no surprise, therefore, to discover that canal-projecting was most intense when interest rates reached a low point.26 The economist and statistician Thomas Tooke considered the fall in interest rates, which dipped below 3 per cent in the 1790s, as ‘both a cause and an effect of the great extension of the country bank system which about that time took place’.27 The canal mania ended with a banking crisis in 1793 after war broke out with Revolutionary France. In February 1797, a small French force landed near Fishgard in Pembrokeshire, Wales, and immediately surrendered to British troops. The main consequence of this invasion of British soil was to trigger a financial panic, followed by an Order in Council permitting the Bank of England to suspend gold payments.

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Until such a doctrine is repudiated by the banking interest, the difficulty of pursuing any sound principle of banking in London will be always very great.61 A sympathetic reviewer of Hankey’s Principles of Banking in The Times warned against suspending the Bank Act: ‘whenever it [suspension] has taken place houses which were insolvent and ought to have fallen beneath the attacks of their distrustful creditors have been enabled to weather the storm only to fall at length into greater ruin.’62 The reviewer didn’t say as much, but had the Bank Charter Act not been suspended during the earlier banking crisis of 1857, Overend Gurney would probably have failed at that date, thus sparing the City from the ‘reign of terror’ nearly a decade later.63 It is no coincidence that the chief proselytizers for central bank accommodation came from banking families. The family fortunes of both Baring and Bagehot were endangered by uncontrolled panics.

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

Unsurprisingly, both the firm and bank soon went out of business, the latter by merging with a large commercial bank that was rescued by the government in 1991. See Erling Steigum, "Financial Deregulation with a Fixed Exchange Rate: Lessons from Norway’s Boom-Bust Cycle and Banking Crisis", 2003. http://www.norges-bank.no/Upload/import/publikasjoner/skriftserie/33/chapter2.pdf 389 The banking crisis started in the late 1980s in Norway and in the early 1990s in Finland and Sweden. 390 They extended loans worth 20 per cent of Swedish GDP, pumping up local housing bubbles, with Swedbank and SEB in particular taking big risks. http://www.economonitor.com/analysts/2009/06/24/swedish-banks-could-they-get-burned-by-heavy-baltic-exposure/ 391 Personal calculations from Office for National Statistics, net financial liabilities of households and non-profit institutions serving households (code: AF.L) divided by four-quarter moving sum of their gross disposable income (code: RPHQ).

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The lesson from Lehman was not that governments must save all banks, but rather that failed banks should be restructured or killed off in an orderly way rather than a chaotic one. In the absence of legal mechanisms for winding down banks in an orderly fashion, insolvent banks should either have been nationalised, restructured and recapitalised before being sold off again (as Norway did during its banking crisis in the early 1990s) or new “good banks” created and the old “bad banks” wound down, as I argued in Aftershock.68 Either option – nationalisation or the creation of new good banks – would have been infinitely preferable to the current mess. It would have boosted the economy, because the freshly capitalised good banks, unburdened by the old bad loans and securities, could have quickly resumed their proper function of lending to sound companies.

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In short, the euro itself did not cause the financial excesses in the pre-crisis years, which occurred across the Western financial system. Indeed, in Act One of the crisis, after the bubble burst, it acted as a shock absorber. Nor has the euro prevented its member economies from adjusting. While it might fail, it is not destined to. Last but not least, the vicious interaction between a banking crisis and a bond-market panic that tore the eurozone apart between 2010 and 2012 was largely due to avoidable policy mistakes in Frankfurt, Brussels and Berlin, as we shall see. What really went wrong It was only in Act Two of the crisis after the bailout of Greece’s creditors in 2010 and even more so in Act Three after the summer of 2011 that the euro became an unstable system that amplified shocks rather than damping them.

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

(It managed to lose £10 billion in a single year.24) There may well, in other words, be a large European bank, or several large European banks, that are even now sliding toward the waterfall, utterly oblivious of what’s about to happen. And if one large bank goes over the edge, there are countless more in danger of following. When and if the banks start to collapse, the fiscal consequences for governments will be horrendous, no matter how prudent they seek to be. A European banking crisis will therefore also be a European sovereign debt crisis‌—‌which in turn will make the banking crisis even worse. * This survey won’t have cheered up too many readers. It’s also raised countless questions. What about Germany? What about the current European bailout fund, the EFSF? What about the euro‌—‌can the European currency even survive?

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The origins of that scheme go way back‌—‌at least three decades, if you think only of Wall Street, but arguably as much as sixty years if you think of the federal government. Naturally, I’m aware that my claim sounds implausible, but I hope it doesn’t strike readers as entirely implausible. After all, just a few years ago in 2008–9, part of the Ponzi scheme was laid bare for all to see in the shape of the subprime mortgage bust and the consequent banking crisis. That crisis was already the largest Ponzi scheme in history, so the track record is there. As for what’s happening today, this book will attempt a patient accounting of the scheme, its debts, its losses, its strategies of concealment. In particular, we’ll find ourselves, again and again, running across the following ingredients, key to any Ponzi scheme: exponentially increasing liabilities‌—‌or, in plain English, rapidly mounting debt; crappy, nonexistent, or inadequate assets; deceitful or nonexistent accounting; feeble, inert, or toothless regulators; a get-rich-quick culture, for preference salted with a whole array of inappropriate incentives; stupid, ignorant, lazy investors‌—‌the greedier, the better; and an astonishing capacity for self-delusion.

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For many companies, the answer will be obvious. And there’s part of the explanation for the US’s current high levels of joblessness and underemployment. That was the background in 2008 when President Obama swept into power with a mandate for change. He had the inbox from hell already‌—‌Iraq, Afghanistan, banking crisis, recession‌—‌but the pressing need for healthcare reform dumped another huge problem on to the To Do list. Right at the top of the reform agenda should have been the topic of cost. There was no other sane priority. In case you should doubt that, take a look at the projected costs of Medicare and Medicaid over the next seventy years in figure 3.5.28 The data are drawn from a 2011 study conducted by the nonpartisan Congressional Budget Office.

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

In fact, the way the bailouts were conducted reinforced the logic of finance-led growth: the state would use its power to give the markets what they wanted, and working people would be forced to pick up the tab. Transatlantic Banking Crisis or Structural Crisis of Financial Capitalism? Reading this account on its own could lead one to conclude that what happened in 2007 was simply a transatlantic banking crisis with its origins in the US. It then spread around the world due to a combination of financial globalisation and financial innovations like securitisation. In the aftermath of the crash, this is the view that dominated.

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The Rise of Global Finance The Political Consequences of Social Democracy Never Let a Serious Crisis Go to Waste Chapter Two Vulture Capitalism: The Financialisation of the Corporation The Big Bang Corporate Raiders, Hostile Takeovers and Activist Investors From Downsize and Distribute to Merge and Monopolise Chapter Three Let Them Eat Houses: The Financialisation of the Household The Enemy Within Privatised Keynesianism Blowing Bubbles Financialisation and Politics Chapter Four Thatcher’s Greatest Achievement: The Financialisation of the State Thatcher’s Greatest Achievement PFI: Profits for Investors The Bond Vigilantes Illiberal Technocracy Chapter Five The Crash Bubble Economics Financial Globalisation Securitisation, Shadow Banking and Inter-Bank Lending Bailout Britain Transatlantic Banking Crisis or Structural Crisis of Financial Capitalism? Chapter Six The Post-Crisis World The Long Recovery Secular Stagnation or Crisis of Capitalism? Austerity Economics Property-Owning Oligarchy The Coming Crisis Chapter Seven The Way Forward Capital Democratic Socialism Socialising Finance Finance for the People Conclusion Beyond Capitalism Notes Acknowledgements For my grandad, who taught me what it means to be a socialist, and my grandma, who taught me that only strong, intelligent, stubborn women have ever changed the world.

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The Anglo-American model was premised upon the kind of debt-fuelled asset price inflation that has always resulted in bubbles. The one that burst in 2008 just happened to be the largest, most global, and most complex bubble that has ever been witnessed in economic history. In this sense, 2008 wasn’t simply a transatlantic banking crisis, it was the structural crisis of financial capitalism, emerging from the inherent contradictions of finance-led growth itself. The political regime of privatised Keynesianism, necessary to mitigate the fall in demand associated with low-wage, rentier capitalism, was always inherently unstable.

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

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Bernanke had suggested that the central bank of Japan could end that nation’s slump by depreciating the value of its currency to stimulate exports, even though inflation would jump to a very high 3 or 4 percent. Bernanke had backed off most of this by the time he became Fed chairman, but he had never lost his interest in experiments. The stagnant economy of 2010 encouraged such experiments. Economists knew that it would take years to recover from the banking crisis, but the reality of high unemployment so long after the crash was still shocking. The unemployment rate was still above 9 percent and economic growth remained weak. There was a crisis gathering strength in Europe thanks to deeply indebted nations like Greece and Spain. These problems, if left unaddressed, could create a cascading effect across the world.

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As a kid, he’d helped his dad tally the family store’s inventory. As a soldier, he’d helped calculate the trajectory of artillery shells. At the Fed, Hoenig helped analyze the constant inflow of data about banks inside the Kansas City Fed’s large district. This is how Hoenig got a front-row seat to observe the biggest banking crisis since the Great Depression. * * * Hoenig’s job involved a lot of arguments with local bankers. The substance of the disputes usually centered on a topic of paramount importance: the value of assets. The bankers often thought that their assets were worth more than the bank examiners thought they were worth.

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He got to see what happens when a long period of inflation comes to a sudden, unexpected stop. “You have this enormous collapse,” Hoenig said. “Failure upon failure, loss upon loss, crisis upon crisis.” CHAPTER 3 THE GREAT INFLATION(S) (1980–1991) Hoenig was thirty-three years old when the banking crisis started. But the forces that combusted in 1980 had been building for many years. Hoenig’s team of examiners in Kansas City could see for themselves that banks had been making riskier and riskier loans for years. But the bankers could always justify what they were doing. They were using a certain logic that was made possible only by the wild distortions of the Great Inflation of the 1970s.

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

Another possibility is that the central bank is forced to restrict credit because of fears of “overheating” and inflation. The result of one or both of these events is that the prices of real estate and stocks collapse. A banking crisis results because assets valued at “bubble” prices were used as collateral. There may be a foreign exchange crisis as investors pull out their funds and the central bank chooses between trying to ease the banking crisis or protect the exchange rate. The crises spill over to the real economy and there is a recession. 22 Franklin Allen and Douglas Gale In the popular press and academic papers, these bubbles and crises are often related to the particular features of the country involved.

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Similar events occurred in Norway, Finland and Sweden in the 1980s (see Heiskanen 1993; Drees and Pazarbasioglu 1995). In Norway, the ratio of bank loans to nominal GDP went from 40 percent in 1984 to 68 percent in 1988. Asset prices soared while investment and consumption also increased significantly. The collapse in oil prices helped burst the bubble and caused the most severe banking crisis and recession since the war. In Finland, an expansionary budget in 1987 resulted in massive credit expansion. The ratio of bank loans to nominal GDP 20 Franklin Allen and Douglas Gale increased from 55 percent in 1984 to 90 percent in 1990. Housing prices rose by a total of 68 percent in 1987 and 1988.

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In recent years many countries have had banking crises. These include the cases of Japan, Norway, Finland, Sweden and Mexico considered in the introduction. Many emerging countries have also had severe banking crises. Lindgren et al. (1996) find that 73 percent of the IMF’s member countries suffered some form of banking crisis between 1980 and 1996. There are two traditional views of banking panics. One is that they are random events, unrelated to changes in the real economy. The classical form of this view suggests that panics are the result of “mob psychology” or “mass hysteria” (see, for example, Kindleberger 1978).

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

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That same afternoon it was reported that Austria had declared war on Serbia and was already bombarding Belgrade. Despite this news, Norman, “feeling far from well” under the strain of the painful negotiations, decided to return to the country. Neither he nor almost anyone else in Britain imagined that over the next few days the country would face the most severe banking crisis in its history; that the international financial system, which had brought so much prosperity to the world, would completely unravel; and that, within less than a week, most of Europe, Britain included, would have stumbled blindly into war. Norman, indeed most of his countrymen, had paid only cursory attention to the brewing European crisis over the previous month.

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He even turned on his erstwhile patron Stresemann, whom he accused of having undercut him by caving in to the Allies behind his back even before the conference had started and of now making him the scapegoat for the political fallout at home. While Schacht, even at this stage, would have been willing to go for broke and risk a global banking crisis, his government was not. Fearing that Germany would once again become a pariah nation, the cabinet disavowed his position, forced him to recant, and insisted that he return to Paris and resume negotiations on the basis of the last Allied proposal. He reluctantly agreed, provided the cabinet gave him political cover by publicly accepting final responsibility for any settlement.

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Over the next few days, as the Fed did just that, New York City banks took over $1 billion in brokers’ loan portfolios. It was an operation that did not receive the publicity of the Morgan consortium, but there is little doubt that by acting quickly and without hesitation, Harrison prevented not only an even worse stock collapse but most certainly forestalled a banking crisis. Though the crash of October 1929 was by one count the eleventh panic to grip the stock market since the Black Friday of 1869 and was by almost any measure the most severe, it was the first to occur without a major bank or business failure. The market traded up for the last couple of days of October.

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

Financial flows multiplied relative to trade flows: in 2011, the total exports of merchandise and commercial services increased by $21.3 trillion, while the volume of foreign exchange transactions reached $4 trillion 332 g l ob a l i m b a l a n c e s g 62. Capital p g crises2 Figure mobilityy and banking 1.0 Capital mobility 0.9 index Percentage of countries in banking crisis, 3-year sum 0.8 capital mobility percentage of countries in banking crisis 0.7 0.6 40 35 30 25 0.5 20 0.4 15 0.3 10 0.2 5 0.1 0.0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 0 2010 a day. Trading in liquid assets – bank loans and equities – dwarfed direct foreign investment. An uncontrolled banking system was left free to place its bets anywhere.

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Widely resisted at the time on the high ground of ‘moral hazard’, it led to the Bank organizing the rescue of Barings in 1890. This was the doctrine that the US Federal Reserve signally failed to apply in the Lehman Brothers crisis of September 2008, and which the European Central Bank was debarred by law from applying in the European banking crisis that followed. V. Bi m e ta l l ism Until the early 1870s, the international monetary system was bimetallic: some countries, like Britain, were on a gold standard, and other countries, like France, were on both gold and silver standards. The customary ratio of exchange between gold and silver was 1:15.

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There can be a period of ‘crawling along the bottom’, or anaemic growth, or very strong (above-trend) recovery. A stylized representation of recovery from 2008–9 would look like this: Asia V-shaped; US U-shaped; Europe a combination of L-shaped (flat-lining) and W (double-dip). 5. Once the corner had been turned, the narrative of the Great Recession changed drastically. The banking crisis turned into a fiscal crisis, and the public debt problem took centre stage. It was at this point that the arguments for austerity began to gain traction. Austerity policies aimed to restore fiscal balances. The restoration of fiscal balance was seen as the necessary condition for recovery of private sector confidence, and hence investment and economic growth.

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

While the increases in asset prices and the money supply may create the impression of a healthy, growing economy, this ‘boom’ is in fact fuelled by an increasing build-up of debt (since all increases in the money supply are a result of increases in borrowing). The current monetary system therefore sows the seeds of its own destruction – households and businesses cannot take on ever-increasing levels of debt, and when either start to default on loans, it can cause a chain reaction that leads to a banking crisis, a wider financial crisis, and an economy-wide recession. Financial crises therefore come about as a result of banks’ lending activities. As Adair Turner, head of the UK’s Financial Services Authority, puts it: “The financial crisis of 2007/08 occurred because we failed to constrain the private financial system’s creation of private credit and money.” (2012) The boom-bust cycle is also caused by banks’ credit creation activities.

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In economic terms the permanent loss to the world economy has been estimated at a staggering $60 - $200 trillion, between one and three years of global production. For the UK the figures are between £1.8 and £7.4 trillion (Haldane, 2010). Yet while the 2007/08 crisis was undoubtedly a surprise to many, it would be wrong to think that banking crises are somehow rare events. In the UK there has been a banking crisis on average once every 15 years since 1945 (Reinhart and Rogoff, 2009), whilst worldwide there have been 147 banking crises between 1970 and 2011 (Laeven and Valencia, 2012). It seems clear that our banking system is fundamentally dysfunctional, yet for all the millions of words of analysis in the press and financial papers, very little has been written about the real reasons for why this is the case.

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These results point to a serious problem with the current monetary system – the financial sector is perfectly capable of destroying itself and the rest of the economy with it on a periodic basis. Worryingly these crises tend to occur with some regularity – in the UK there has been 12 banking crises since 1800, with 4 of those coming since 1945 (Reinhart & Rogoff, 2009). Globally the situation is similar – Figure 4.4 shows the percentage of countries in a banking crisis between 1800 and 2007 (so excluding the most recent financial crisis) fig. 4.4 - Percentage of Countries affected by Banking Crises Source: Reinhart and Rogoff, 2008 Box 4.F - The house price bubble In the years preceding the most recent financial crisis, bank lending created a bubble in the property market in several countries.

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

Thus, the first inference usually drawn from this experience is that deep recessions are inevitable after banking crises, even when these crises are vigorously managed. The second inference is that a banking crisis that is managed less skillfully than Sweden’s will surely produce a much worse recession, as it did in Japan. Luckily for the world, neither of these commonly accepted conclusions stands up to scrutiny. In the Swedish case, the recession actually began in 1990, almost two years before the banking crisis, and was caused by an extreme policy of high interest rates, which were raised at one point to above 100 percent in a desperate attempt to defend the Swedish kronor’s exchange rate against the deutsche mark.

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Moreover, examining the causal connections the other way round, several extreme financial crises in recent history were not associated with broader economic downturns at all. The clearest such example is also one that refutes the conventional view that Japanese-style economic and financial paralysis must follow if zombie banks are kept on government life support and their losses hidden or disguised. By far the biggest banking crisis in postwar history prior to 2007-08 occurred from 1982 to 1989, when Mexico, Brazil, Argentina, the Philippines, and many other developing countries defaulted on bank loans worth several times more than the capital of the global banks. As a result, almost every major bank in the United States and Europe was technically insolvent throughout this five-year period.

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Capitalism 4 will differ from Capitalism 3 by recognizing that these two desirable objectives are in conflict, but it cannot resolve this tension by sacrificing all financial innovation and creating a static financial system or by resorting to the overweening government intervention of Capitalism 2. Advanced capitalist countries, especially those with large and dynamic financial sectors such as the United States, Britain, and Switzerland, must resist populist demands to strangle nonbank financial institutions with punitive regulations inspired by the banking crisis. These countries have a clear comparative advantage in international finance. In a world of free trade, where prosperity generally progresses when nations specialize in their areas of comparative advantage, it is natural for Anglo-Saxon countries to have larger financial sectors and smaller manufacturing sectors than other countries.

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

Alan Greenspan, Albert Einstein, Apollo 11, Asian financial crisis, asset-backed security, banking crisis, Basel III, Bear Stearns, Berlin Wall, Bernie Madoff, bond market vigilante , British Empire, business cycle, capital controls, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, congestion charging, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cross-subsidies, currency risk, debt deflation, Deng Xiaoping, Diane Coyle, endowment effect, eurozone crisis, Fall of the Berlin Wall, financial innovation, financial repression, fixed income, floating exchange rates, Ford Model T, full employment, George Akerlof, German hyperinflation, Glass-Steagall Act, Hyman Minsky, income inequality, income per capita, inflation targeting, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, junk bonds, Kickstarter, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, London Interbank Offered Rate, loss aversion, low interest rates, market clearing, mass immigration, Minsky moment, moral hazard, mortgage debt, Neil Armstrong, new economy, New Urbanism, Nick Leeson, Northern Rock, Occupy movement, oil shale / tar sands, oil shock, old age dependency ratio, price mechanism, price stability, quantitative easing, railway mania, rent-seeking, reserve currency, rising living standards, risk free rate, Savings and loan crisis, seminal paper, South Sea Bubble, sovereign wealth fund, technology bubble, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, too big to fail, trade route, trickle-down economics, Washington Consensus, women in the workforce, working-age population

Location decisions are unlikely immediately to change as a consequence of a sudden shift in the exchange rate, particularly now that corporate treasury departments use hedging strategies to insure against unanticipated movements in the currency markets. And there is another big difference. The US may have had a huge banking crisis in the 1930s but the UK did not. Monetary policy therefore could feed through to the broader economy relatively easily. That no longer applies: in the UK, thanks to an enormous banking crisis, the monetary drugs no longer appear to have the power of old. Despite these objections, there are plenty of people who argue that what the world needs now is a bigger dose of 1930s medicine, another New Deal, another period of economic stimulus to match the policies of the Depression era that reversed the earlier attachment to austerity and liquidation.

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Even financially conservative countries succumbed to ongoing disappointment. Although Germany's decline in 2008 and early 2009 was followed by a strong trade-led recovery, the momentum didn't last: by 2012, German exporters were being hit by a collapse in demand in southern Europe as a global banking crisis evolved into a eurozone sovereign crisis. Absent a decent recovery, the process of repaying debt – of deleveraging – has been made all the more difficult. Having thought they could grow their way out of their debt difficulties, Western policy-makers have been forced to rethink their plans. Worse, persistently low levels of economic activity have made it much more difficult to deliver on the promises made before the onset of the financial crisis.

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The standard cyclical argument is simply that a country faced with deficient demand will have plenty of spare capacity and, hence, is unlikely to be able to generate conditions that might put upward pressure on prices. Even if the economy has entered into an extended period of stagnation, inflation will still be unlikely, particularly if the stagnation partly results from a banking crisis that chokes off the effect of the central bank's printing press on the broader economy: Japan's two lost decades provide the perfect example of such conditions. Yet, even in the most extreme recessionary circumstances, it is still possible to generate higher inflation. Roosevelt, after all, managed to do so between 1933 and 1936, fulfilling the pledge made in his May 1933 fireside chat, even though the US economy was, by then, but a shadow of its former self.

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

Indeed the financial crisis might have further to go, depending for instance on whether European governments such as Greece can repay their debts, or how high unemployment stays and for how long. To say the economy is in a mess is an understatement. Any recession is unwelcome because people lose their jobs, and this has been no ordinary recession. The banking crisis made it the deepest since the Great Depression. The recovery will be a long, slow haul, and there will be a legacy of spending cuts, tax increases, and a huge government debt burden in many countries. The debate about public spending is not whether it will have to be cut, but rather how much and how quickly.

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The institutions, the rules for governing how we organize the large and complicated societies of the modern world, lag behind people’s behavior as they go about their day-to-day activities—working, spending, investing, saving. The sense of crisis will come to a head due to some trigger—in the mid-1970s it was the OPEC oil price rise, in 2008 the near-collapse of the global financial system. The current structural fragility revealed by the banking crisis has deeper causes. These lie in a dramatic series of technological innovations since the late 1970s, the information and communication technology (ICT) revolution. The financial sector is the most dramatic example of the way ICTs have revolutionized ways of organizing business and relationships in the economy.

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But some people have started to challenge this presumption. In the richest countries the relevance of growth as the central aim of policy has increasingly come to be questioned. The consumerism of the boom era has generated something of a sense of revulsion; as the economic and financial dust settles after the banking crisis, a sort of existential introspection questioning the moral basis of the economic order has set in. Don’t Western consumers have enough? And even though growth is agreed to be vital still for poor countries, it is often thought to come at a high cost—for example, in terms of its effects on traditional culture or urban squalor.

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

As a result tradable securities created by the financial system on the back of household mortgages became gradually illiquid; consequently, banks began to face difficulties in accessing fresh funds in the money market; hence holders of financial liabilities associated with banks started to withdraw from the markets. A systemic banking crisis of liquidity and solvency gradually emerged. The immediate causes of the banking crisis in the US have been extensively discussed in the economic literature, attention being paid to the emergence of the ‘shadow’ banking system associated with money market funds and derivatives markets.31 Briefly put, money market mutual funds (MMMF) operating in the money markets diverted retail deposits away from ‘traditional’ banks; commercial banks securitized assets and moved them off the balance sheet; repurchase agreements (repos) were widely deployed to give liquidity to securitized bonds.

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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. The result was that the US financial system became insolvent since it could not service its debts. The causes of the US banking crisis have also been attributed to the emergence of banks that are ‘too big to fail’. This issue is directly related to the regulation of the financial system – and is thus discussed in Chapter 10 – but it also has a bearing on the unfolding of the crisis. Lisa DeFerrari and David Palmer recognized the dominant role of a few financial institutions already in the early 2000s, coining the term ‘large complex banking organizations’.

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Constriction of the supply of credit by banks and markets forced enterprises to cut back on output and employment; consumption declined as worried and over-indebted households rearranged expenditure; export markets collapsed, particularly for automobiles and consumer electronics. Developing countries also suffered as capital flows became problematic, necessitating emergency borrowing. The global turmoil that broke out in 2008 was thus spurred by a banking crisis and the ensuing tightening of credit. Pools of credit completely disappeared as financial institutions abandoned securitization; banks tightened credit provision in an attempt to improve liquidity and solvency; laden with debt and confronted with falling housing markets, households drastically reduced borrowing; aggregate demand declined, impacting on firm inventories, output and employment; investment collapsed across mature capitalist countries; international trade fell, contributing to a general recession.

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

By granting overdrafts to the banks that accepted its supervision, the Suffolk Bank created interbank liquidity ex nihilo, which safeguarded the convertibility of notes even during banking crises. The other famous system was the New York Clearing House Association (NYCHA) created in 1853. This dealt with banking panics by issuing Clearing House Loan Certificates, which were successfully used during the terrible banking crisis of 1857.52 Exacerbating tensions between the economic interests of the Northeastern industrial and financial states and those of the Southern and Western states, the 1857 crisis sowed the seeds of the Civil War. THE NEED FOR A HIERARCHICALLY ORGANISED BANKING SYSTEM, AND THE ADVENT OF CENTRAL BANKS A clearing house is, then, a centralised organisation which introduces collective rationality into payment systems.

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On the recommendation of a House commission, an 1878 law authorised the issuance of legal-tender certificates in silver, in order to mitigate the insufficiency of metal reserves in times of crisis.12 But this did not re-establish bimetallism. The quarrel over silver resumed in 1892 and reached its climax in the 1896 election campaign.13 Concerned by the erosion of metal reserves, foreign investors sought to withdraw their gold assets. Gold reserves contracted by some $45 million, with the result that, in June 1893, a banking crisis broke out in New York. John P. Morgan, pope of the city’s bankers, had to go to London to negotiate a gold loan, so that he would in turn be able to loan $65 million to the Treasury. This would allow the value of reserves to be pushed above the minimum level of $100 million. Due to his success, the United States overcame the monetary crisis.

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Errors in appreciating asset price movements translated into massive undervaluations of credit risk, insufficient reserves, inadequate own funds, and distorted maturities. This resulted in improper exposure to the variations in short-term rates. In sum, the management of the bankers was calamitous. It was through such practices that dodgy credit accumulated during the US real estate boom from 1987 onwards. The rise in short-term rates in 1989 triggered the banking crisis. Restructuring took a long time, and required a new law, the FDICIA (Federal Deposit Insurance Corporation Improvement Act), adopted in 1991. The Act’s objective was to strengthen the legitimacy of the banks’ supervisory body in forcing the banks to manage their risks properly. The essential idea was the obligation placed on the supervisory body to take pre-emptive corrective action, and thus to detect which banks were fragile and force them to increase their own funds, or else restructure them before they fell into bankruptcy.

Rethinking Money: How New Currencies Turn Scarcity Into Prosperity by Bernard Lietaer, Jacqui Dunne

3D printing, 90 percent rule, agricultural Revolution, Albert Einstein, Asian financial crisis, banking crisis, Berlin Wall, BRICs, business climate, business cycle, business process, butterfly effect, carbon credits, carbon footprint, Carmen Reinhart, clockwork universe, collapse of Lehman Brothers, complexity theory, conceptual framework, credit crunch, different worldview, discounted cash flows, en.wikipedia.org, Fall of the Berlin Wall, fear of failure, fiat currency, financial innovation, Fractional reserve banking, full employment, German hyperinflation, Glass-Steagall Act, happiness index / gross national happiness, holacracy, job satisfaction, John Perry Barlow, liberation theology, low interest rates, Marshall McLuhan, microcredit, mobile money, Money creation, money: store of value / unit of account / medium of exchange, more computing power than Apollo, new economy, Occupy movement, price stability, reserve currency, Silicon Valley, systems thinking, the payments system, too big to fail, transaction costs, trickle-down economics, urban decay, War on Poverty, working poor

Perhaps the most surprising finding is that 28 percent work full-time, year round. These estimates defy the stereotypes of lowincome families.”5 The squeeze for cash has gotten more acute recently. Today, 80 percent of Americans report that they are living paycheck to paycheck. This is nearly double the figure in 2007, just before the banking crisis. One in five individuals earning over $100,000 per year report that they, too, are living from month to month.6 Savings are at an all-time low.7 Consequently, the need for credit is on an upswing while banks are not lending. The Failure of Money 13 The money system really isn’t serving humanity.

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“Of those switchers, 610,000 U.S. adults (or 11 percent of the 5.6 million) cited Bank Transfer Day as their reason and actually moved their accounts from a large to a small institution.”2 Community Bankers of America said a poll of its 5,000 members found that nearly 60 percent of community banks are gaining customers who “are sick and tired” of the big financial institutions.3 95 96 PROSPERITY As described in Chapter 4, in functioning systems, nature leans more to resilience than efficiency. Ironically, whenever a banking crisis unfolds, governments invariably help the larger banks absorb the smaller ones, believing that the efficiency of the system is thereby increased. Instead, when a bank has proven to be “too big to fail,” why not consider the option of breaking it up into smaller units that compete with each other?

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“The direct use of means-of-payment money (bank deposits) was removed from the transaction process. In the absence of this money, exchange activity remained relatively unaffected because the public was prepared to use undated trade credit as the instrument of exchange.”7 Another variation of the mutual credit system was used to address a different banking crisis in another decade in another country. In this case, the banks threatened to suspend lines of credit, the lifelines of many businesses. The solution that arose is still in existence today. It is actually a major contributor to that country’s ongoing monetary stability and robustness. It is perhaps surprising to learn that the country where this happened is Switzerland, one of the world’s most economically conservative and stable countries.

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

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

In the United States the most powerful businessman of the time was the banker JP Morgan. He was not just one of the world’s richest men at the turn of the nineteenth century, he controlled assets equivalent to some two-thirds of the nation’s output, giving him a stranglehold over American business. The banking crisis of 1907 was solved not by the intervention of government, but by a handful of private bankers led by Morgan. In the UK, the nineteenth century was the golden age of financial imperialism. Although the banks funded, through credit, the building of the nation’s infrastructure— notably the canals and railways—the lion’s share of financial investment went into overseas markets and a mix of speculative activity.

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, op. cit. p 12-13. 142 C Toulouse, ‘Thatcherism, Class Politics and Urban Development in London’, Critical Sociology, Volume 18, 1992, p 62. 143 D Kynaston, The City of London, Volume IV, Pimlico, 2001, chapter 22. 144 Z/Yen, The Global Financial Centre Index, City of London Corporation, March 2007. 145 http://www.ifsl.org.uk/media/2333/Eco_con_of_UK_fin_ser_2007.pdf. 146 Centre for Research on Socio-Cultural Change (CRESC), An Alternative report on UK Banking Reform, University of Manchester, 2009, p 41. 147 Robin Blackburn,’ Finance and the Fourth Dimension’, New Left Review, 39, May/June, 2006. 148 Boston Consulting Group, Investment Banking and Capital Markets, Annual Reports. 149 Glyn, Capitalism Unleashed, op. cit. p 52. Elsewhere, the rise of finance proceeded somewhat less smoothly. In the 1990s, the growth slowdown in Germany and the Japanese banking crisis both led to slumps in the valuation of finance companies in those countries. 150 Merrill Lynch and Capgemini, World Wealth Report, 2010, figure 8. 151 José Gabriel Palma, ‘The revenge of the market on the rentiers. Why neo-liberal reports of the end of history turned out to be premature’, Cambridge Journal of economics, vol 33, issue 4, 2009. 152 IMF, Global Financial Stability Report, April 2009, Appendix Tables 3 and 4. 153 CRESC, op. cit. p 42. 154 Anthony Sampson, The Midas Touch, Hodder & Stoughton, 1989, p 13. 155 Quoted in R Roberts and D Kynaston, City State, Profile, 2002, p 116. 156 Bank for International Settlements, Triennial Central Bank Survey, Foreign Exchange and Derivatives Market Activity, September, 2010. 157 Harvey, Neoliberalism, op. cit. p 161; P Dicken, Global Shift, Guilford Press, 2003, ch 13. 158 N Shaxson, Treasure Islands, Bodley Head, 2011, p 74. 159 Ibid. p 78. 160 The Observer, 24 December, 2006. 161 M Hollingsworth and S Lansley, Londongrad, Fourth Estate, 2009, ch 4. 162 Ibid. 163 Michael Freedman, ‘Welcome to Londongrad’, Forbes Global, 23 May 2005; R.

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From the beginning of the 1980s, the number of banking failures in the US started rising sharply, a problem exacerbated by the impact of bank deregulation. 231 In 1989, the bursting of a serious property bubble in Japan, triggered by a series of bank liquidity crises, led to a decade-long period of deflation and a sustained collapse in Japanese shares prices. It had been preceded by a decade of rising profits (which rose to 40 per cent of output) and soaring assert prices.232 Between 1990 and 1992, Norway, Sweden and Finland all suffered a banking crisis sparked by a similar property boom, the deregulation of financial services, and excessive lending by the banks. The economies of Sweden and Finland shrank for three years in succession. Finland’s unemployment rate hit 20 per cent in 1994. Again, only decisive action by the national governments prevented a more prolonged fall-out.

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

This initiative met fierce resistance from France and south European central banks, who argued that at the height of the crisis only domestic banks were “willing” to buy government debt from vulnerable countries. In their view, domestic banks acted as a stabilizer for government bond markets. Forcing domestic banks to hold domestic government debt also serves as a commitment device for the government not to default on its debt since any subsequent default would trigger a widespread banking crisis and send the economy into a tailspin. Taking the domestic banks “hostage” however constitutes a “straitjacket commitment” that it is too strong as it rules out any debt restructuring even in extreme circumstances and might stifle growth in the long run. Crisis Management: Monetary Policy As we have seen, a financial economy is, by its very nature, not robust to adverse economic shocks.

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The investment banking part of the new bank was eventually sold off to a Chinese investor, Haitong Securities, for €379 million.20 Senior bondholders in Novo Banco obtained, in effect, a guarantee through a €4.5 billion loan—an operation that provided a signal to the rest of the European banking sector. That loan may have limited possible spillover and contagion effects on the rest of the European banking sector, and fears that a new banking crisis would undermine the stabilization of the euro area receded.21 The fact that senior bondholders were still partially bailed out showed that the application of the not yet implemented rules would become very difficult. The next test of the new arrangements, which gave the ECB a great deal of power through its new supervisory powers, came with the announcement of the results of the comprehensive assessment consisting of an asset quality review (AQR) conducted by the ECB and the third EU-wide stress test, conducted by the EBA, on October 26, 2014 (a Sunday, when the markets were closed).

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And these calls for crisis interventionism are yet another source of conflict: in the French tradition, emergency measures are part of the standard crisis-fighting toolkit, but German philosophy interprets every intervention as setting a precedent and so creating a new, permanent rules-based environment for the euro area. 11 Banking Union, European Safe Bonds, and Exit Risk Up to this point, our discussion of banking crisis mechanisms and crisis management could just as well apply to individual countries rather than entire currency blocs. We now instead turn to considerations that are special to currency unions, in particular, to one in which a deeply integrated political and fiscal union is, at least in the short and intermediate perspective, more utopia than a political feasibility.

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

May 11, 1931—Credit-Anstalt, a leading Austrian bank, fails, prompting a ripple effect of withdrawals and more bank failures in Germany and elsewhere in Europe. July 9, 1931—Hans Luther, head of the German Reichsbank, travels to European capitals and then to meet fellow central bankers in Basel, looking in vain for international relief from the growing banking crisis. September 21, 1931—Britain leaves the gold standard, facing economic collapse should it try to maintain the peg of the pound to the price of gold. July 22, 1944—Global economic leaders finish a conference in Bretton Woods, New Hampshire, where they agree to a world economic order for the post–World War II globe.

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History has taught again and again that when banks shut down and hoard their money, so too do the economies they serve. A banker who’s unwilling to lend to other bankers is likely also to be unwilling to lend to the businesses and households that need money to build a factory or buy a house. If unchecked, the banking crisis in Europe could inflict untold damage on the world economy. Suddenly, the European habit of taking a lengthy late summer vacation had become very inconvenient. Gather the Executive Board, Trichet instructed Papadia. He needed to talk to the six officials from across Europe who share the collective authority to deploy the resources of the central bank—including the ability to create euros from thin air.

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In December, it was 352 more, including the gigantic Bank of the United States. As the banking system collapsed, millions of Americans lost their savings and the supply of money in the economy shrank. The Fed and President Herbert Hoover stood by and watched and hoped. In 1931, the unemployment rate climbed to 16 percent. In 1933, it reached 25 percent. 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.

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

Unlike other recessions that saw a V-shaped output drop and quick recovery, the 2008 crisis has seen a sharp fall in national output or GDP (gross domestic product) but a sluggish recovery. Economists have become worried that this is our collective future. There’s even a term revived by Harvard economist Lawrence Summers to describe a slow-growth world: ‘secular stagnation’. This was a term used by Alvin Hansen in the 1930s after the last systemic banking crisis to describe the resultant slow growth due in part to ageing societies, among other issues.2 Japan is the forerunner here, as the most aged economy. How would Solow judge the slow post-crisis recovery, and would he agree that we face a slow-growth future? This question is a pervasive one in the coming years for all developed economies.

…

Yields on ten-year government debt, known as gilts, fell to record lows of around just 1 per cent after the Brexit vote. Record lows had also been reached for twenty- and thirty-year debt. It meant that, for the first time, the British government could sell debt by paying around 1 per cent interest for a decade. Even with interest rates being raised in 2017 for the first time since the banking crisis, borrowing costs remain fairly low. So, do low interest rates affect the question of whether governments should borrow to invest now? Keynes pointed out that there is no ‘crowding out’ of private investment when the economy is operating below its potential. ‘Crowding out’ refers to how governments borrowing to invest would make it harder for private firms to do so because their demand for loans would push up the interest rate and make it more expensive for others to borrow.

…

In the year following the crash, the US money supply fell by a relatively small 2.6 per cent as the Federal Reserve cut interest rates and lent heavily to the banking sector. Injecting a great deal of cash into banks gave them some much-needed liquidity and prevented the stock market collapse from precipitating an immediate banking crisis. 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.

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

Unlike other recessions that saw a V-shaped output drop and quick recovery, the 2008 crisis has seen a sharp fall in national output or GDP (gross domestic product) but a sluggish recovery. Economists have become worried that this is our collective future. There’s even a term revived by Harvard economist Lawrence Summers to describe a slow-growth world: ‘secular stagnation’. This was a term used by Alvin Hansen in the 1930s after the last systemic banking crisis to describe the resultant slow growth due in part to ageing societies, among other issues.2 Japan is the forerunner here, as the most aged economy. How would Solow judge the slow post-crisis recovery, and would he agree that we face a slow-growth future? This question is a pervasive one in the coming years for all developed economies.

…

Yields on ten-year government debt, known as gilts, fell to record lows of around just 1 per cent after the Brexit vote. Record lows had also been reached for twenty-and thirty-year debt. It meant that, for the first time, the British government could sell debt by paying around 1 per cent interest for a decade. Even with interest rates being raised in 2017 for the first time since the banking crisis, borrowing costs remain fairly low. So, do low interest rates affect the question of whether governments should borrow to invest now? Keynes pointed out that there is no ‘crowding out’ of private investment when the economy is operating below its potential. ‘Crowding out’ refers to how governments borrowing to invest would make it harder for private firms to do so because their demand for loans would push up the interest rate and make it more expensive for others to borrow.

…

In the year following the crash, the US money supply fell by a relatively small 2.6 per cent as the Federal Reserve cut interest rates and lent heavily to the banking sector. Injecting a great deal of cash into banks gave them some much-needed liquidity and prevented the stock market collapse from precipitating an immediate banking crisis. 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.

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

Much of the Fed’s intervention involved purchasing foreign currencies on Franklin’s behalf, assuring foreign creditors they would be paid—and even extending its lender-of-last-resort function to Franklin’s London office, on the grounds that “the failure of Franklin to perform on such a volume of international commitments would lead to a crisis of confidence in foreign exchange markets and possibly to an international banking crisis.”85 The grounds for such fears were real enough. The UK’s 1973 “secondary banking” crisis, which was also due to the collapse of a real-estate bubble, “threatened some of the biggest financial institutions with the real risk of collapse.”86 Moreover, a broad range of European banks were revealing major losses amid the volatility in short-term capital flows that were initially triggered by both floating currencies and the recycling of petrodollars.

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Chapter 7. 11 As Ryner explained: “The rise of a grey capital market in the wake of sustained inflation, and currency swaps by Swedish multinationals, made it impossible to maintain regulations.” J. Magnus Ryner, Capitalist Restructuring, Globalization and the Third Way: Lessons from the Swedish Model, New York: Routledge, 2002, p. 161. See also Peter Englund, “The Swedish Banking Crisis: Roots and Consequences,” Oxford Review of Economic Policy, 15: 3 (1999), pp. 80–97. This is not to say the Swedish state suddenly became “weak”; in fact, its quick response to Sweden’s massive banking crisis of the early 1990s—including socializing the banks’ bad debts, and then developing a new pension system to provide them with a steady flow of workers’ savings—showed how a “strong state” was able to harness both social benefits and strong unions to the liberalization project in the course of coping with its inherent economic instabilities. 12 Singer, Is Socialism Doomed?

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One of his first moves was the suspension of the dollar’s convertibility into gold—thereby breaking with the Federal Reserve’s stubborn clinging to the gold standard under Hoover. So frightened were the bankers themselves by the domestic situation at the time of Roosevelt’s inauguration that they made no objection to the sweeping emergency authority he immediately secured from Congress to deal with the banking crisis, granting the Treasury extensive powers, including the power to buy up all private gold bullion and certificates as well as to provide liquidity to the banks. As Charles and Mary Beard noted, “With an alacrity suggesting spontaneous combustion, excited Representatives and Senators rushed the draft through the two houses and placed it on the President’s desk before the end of the day.

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

Hoover, meanwhile, was still trying to absorb what had happened to him. He paid a surprise visit to the Hoover Dam—“I never in my life saw a man look so worn out,” recalled an observer at Boulder City. Recognizing, better perhaps than any man, that something had to be done over the course of the winter to slow an alarming spread of the bank crisis, he made a point of showing himself to be a good soldier. He wrote memos. He telegraphed Roosevelt to ask for a meeting on the international debt problem—but also, really, in the hopes the two could be partners over the coming months. His moratorium was coming to an end and Britain and France were begging for reconsideration.

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He became president of Commonwealth and Southern. He was also doubtless concerned about what was going on at home: farmers from Indiana, like those from six other states, were striking at the state capitals to win moratoria on their crushing debt and tax burdens. The uncertainty of the interregnum took its toll. When the banking crisis grew yet worse, Hoover tried contacting Roosevelt, even sending at one point a lengthy personal letter. Historians would later note that Hoover’s sense of urgency even showed up in the way he addressed the letter, misspelling Roosevelt’s name “Roosvelt.” Roosevelt was cruising the coast of Florida; Hoover expected to meet on his return.

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He would present it all in what came to be known as the Hundred Days, that first frenzied period of legislative activity. Some of the projects were mere extensions of Hoover’s efforts, no matter what Hoover said. 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.

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

Indeed, in one of the best-informed analyses of the crisis, Perry Mehrling of Columbia University argues that ‘it is not just the shadow banks but, more important, the larger capital-market based credit system that failed, and it is that failure that we must understand if we are to put the system back together again, and on more solid foundations this time. This financial crisis is not merely a subprime mortgage crisis or even a shadow-banking crisis; it is a crisis of the entire market-based credit system that we have constructed since 1970.’40 From the point of view of vulnerability to runs, a vital feature was that a new form of credit-backed money emerged. A working paper from the International Monetary Fund in 2012 summarized what happened: in recent decades, with the advent of securitization and electronic means of trading and settlement, it became possible to expand greatly the scope of assets that could be transformed directly, through their use as collateral, into liquid or money-like assets.

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Given the inability to create and sustain a Eurozone-wide financial system with a Eurozone-wide fiscal backstop, a logical alternative would be to segment the financial system and so permit national governments and/or national central banks to impose controls on capital flows. By accident more than design, the exchange controls adopted by Cyprus after its banking crisis would show the way. It is particularly important to curb cross-border funding of banks as part of country-oriented macroprudential regulation. Of course, this would be a violation of the explicit goals of the Eurozone. But attempting to achieve this has not worked too well. It might be more sensible to accept that even inside a currency union, finance should be domestically focused and managed.

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Paul Davies and Michael Mackenzie, ‘Money Fund Sector Shocked as Reserve Breaks the Buck’, Financial Times, 18 September 2012. 20. On the administration in the UK, see http://www.pwc.co.uk/business-recovery/administrations/lehman/lehman-faq.jhtml. 21. House of Commons Treasury Committee, ‘Evidence on 24th June 2009’, Banking Crisis: Regulation and Supervision, 14th Report of Session 2008–09 (London: The Stationery Office, 31 July 2009), Ev32. 22. Ibid., p. 230. 23. Francesco Guerrera, Henny Sender, Michael Mackenzie, Krishna Guha, James Politi and Daniel Dombey, ‘Fears Emerge over $700bn Rescue’, Financial Times, 22 September 2008. 24.

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

Germany, he wrote was responding in a “rational, if not optimal” manner to the economic realities it faced.170 To most European officials, however, the brief German rebellion was—​ and remains—​an instance of blatant and willful abuse of the rules. Indeed, in 2011, in the frenzied phase of the eurozone’s sovereign debt and banking crisis, Schröder himself did an about-​face on this matter. Although he continued to mumble that Germany deserved special treatment in 2002 and 2003, he expressed regret at having shown disrespect for the SGP.171 Meanwhile, the ECB quickly established itself as a practitioner of monetary policy dominantly focused on controlling inflation.

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Meanwhile, panic in the ABCP market spread fear to all short-​term funding markets, “even those that were not exposed to risky mortgages.”7 The largely unknown IKB thus became the symbol of a major fault line in the global financial system. Other German banks—​ including Commerzbank, Germany’s second-​ largest bank—​acknowledged that they had also incurred losses on their US subprime assets.8 Jochen Sanio, president of the German financial supervisory authority, dramatically declared that Germany faced its “worst banking crisis since 1931.”9 On Thursday, August 9, BNP Paribas, the largest French bank, notified investors that they could not withdraw their money from three of their funds that had purchased US subprime mortgages.10 The market value of the mortgages was declining, and BNP did not want to be left holding worthless assets while investors took their money and walked away.

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Moody’s had lowered the credit ratings of many banks to below the minimum credit quality level required by the internal rules of some investors.114 In addition, investors were concerned that, with the yields on Spanish and Italian governments bonds soaring to “potentially unsustainable levels,” the two governments would not be able to rescue their banks. In fact, even eurozone authorities would find it difficult to mobilize sufficient resources to rescue Spain and Italy if they began tipping into a full-​ blown sovereign-​banking crisis. The Spanish government’s debt far exceeded the sum of Greek, Irish, and Portuguese debt. The Italian government’s debt 308   e u r o t r a g e d y was even larger. As the risks mounted, financial shock waves from Spain and Italy rumbled across Europe and the world. On July 23, Moody’s placed a “negative outlook” on the debt of the German, Dutch, and Luxembourg governments, threatening to take away their prized triple-​A rating.

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

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

Speculation and excessive risk taking, à la the late 1920s, would reappear. He warned that the inevitable crises would be easier to deal with if they were concentrated inside the regulated banking system rather than outside, without official oversight. I later recalled that warning while distinguishing between the manageable Latin American banking crisis in the 1980s, in which United States and foreign banks found themselves with huge portfolios of loans to countries in Latin America and other emerging markets that couldn’t repay them, and the subsequent highly damaging Asian monetary crisis little more than a decade later, complicated by contagious currency speculation and international capital flows.

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The New York Federal Reserve Bank, with its operating responsibilities and a widely respected leader in Benjamin Strong, emerged as the focal point for monetary policy, both domestic and international. That pattern continued for a time after Strong died in 1928 but without the same degree of respect for the leadership. The following year’s stock market crash, the severe banking crisis, and the ensuing Great Depression inevitably raised questions about the effectiveness of Federal Reserve policy. A strong new chairman of the Washington-based board, Marriner Eccles, eventually succeeded with President Roosevelt’s support in convincing Congress to rewrite key sections of the Federal Reserve Act in 1935.

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(As the Watergate break-in and cover-up later proved, those electoral priorities also overrode other important considerations.) With the loss of international discipline and strong fiscal and monetary policies, an inflationary process took hold. By the accidents of fortune, I was destined a few years later to lead the effort to deal with the Great Inflation and the related Latin American banking crisis. A Useful Treasury Legacy Before leaving the Treasury, I did have the opportunity to put in place some useful reforms in how the US government borrows money. In this area, we could make most of the changes on our own, without legislation or international agreement. For decades, the Treasury Department’s standard practice in selling notes and bonds (debt securities maturing in more than a year) was to announce to potential buyers an offering date for a certain dollar amount at a stated maturity and a fixed interest rate.

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

It was a powerful role, including the oversight of New York commercial banks, and Corrigan, a forceful, burly character with a gravelly voice, was not afraid to express his views bluntly. By 1991, he had already worked at the Fed for a couple of decades, serving as special assistant for a period to the legendary Paul Volcker, and he had seen the financial system suffer through several business cycles and bouts of panic. He had cut his teeth handling the Herstatt Bank crisis of 1974, when the failure of a small German group had rocked the Euromarket, and had confronted the Latin American debt crisis, the collapse of Continental Illinois National Bank, and the failure of Drexel Burnham Lambert. “I have seen it all before,” Corrigan was fond of growling. All that experience had left him uneasy about the tendency of bankers to sow havoc when left to their own devices.

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In early 1998, the J.P. Morgan swaps team conducted a second $10 billion deal, “insuring” another huge chunk of the bank’s loans and bonds. That success led the team to start marketing the service to others. Japanese banks were among the first to bite. By 1998, Japan was in the throes of a full-blown banking crisis that had left the largest banks desperate to find a way to reduce their risk. In the summer, the team cut a series of billion-dollar deals with lending institutions including Fuji, IKB, Daiwa, and Sanwa. Soon after, Masters arranged a BISTRO structure for Pittsburgh-based bank PNC. Demchak already knew that group well, since PNC was his hometown bank, and he had helped to restructure some troubled interest-rate derivatives deals that PNC had made in the early 1990s.

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“If Alan Schwartz [the Bear CEO] is worried, he had better call me,” Geithner told Bear’s lawyers. The next day Schwartz duly called Geithner. “So which institutions are you talking to?” Geithner asked. He badly hoped that Bear might be able to sell itself. A decade earlier, Geithner had worked in Tokyo, as financial attaché to the US Embassy, just as the Japanese banking crisis was getting under way. The Japanese had dealt with failing banks by persuading a stronger institution to step in, and Geithner hoped that such a shotgun marriage could save Bear. Schwartz told Geithner that there were two possible suitors, JPMorgan Chase and Barclays Capital. “Better go back and get talking again!”

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

Iceland's government and central bank did all they could to get hold of liquidity and even asked the central banks of other countries where the banks had operations for loans, but to no avail. The Icelanders had nowhere left to go. On October 6, Prime Minister Geir Haarde asked for broad powers to handle the banking crisis, concluding his speech with the words Gud blessi island-"God help Iceland." The next day, the government used its new powers to nationalize Landsbanki. It promised that it would guarantee the money of Icelandic savers while foreign savers would be given compensation, if possible, up to 20,000 euros ($27,000), in line with European guarantee agreements.

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Duhigg, "At Freddie Mac, Chief Discarded Warning Signs." 23. Paulson, oral statement on regulatory reform; Kopecki, "Fannie, Freddie 'Insolvent' after Losses"; CNBC, "Fannie & Freddie Takeover." 24. Duhigg, "At Freddie Mac, Chief Discarded Warning Signs." 25. Stiglitz, "Fannie's and Freddie's Free Lunch." 26. Bartiromo, "Bill Clinton on the Banking Crisis." 27. Gillespie and Welch, "`I Think the SEC Was Distracted."' 28. Kelly, "Where in the World Is Bear's Jimmy Cayne?" 29. CNBC's Jim Cramer, who had warned of "Armageddon" as far back as August 2007, gave less impressive advice this time. On the March 11, 2008, edition of Mad Money he shouted, "No!

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Onaran and Helyar, "Fuld Sought Buffett Offer." 32. Dan Duyn, Brewster, and Tett, "The Lehman Legacy"; Onaran Helyar; Ohlsson, "Bushs nej blev starten pa den globala finanskrisen." 33. Poor, "Knock Out." 34. Gullapalli and Anand, "Bailout of Money Funds." 35. Bartiromo, "Bill Clinton on the Banking Crisis." 36. Tett, "The Dream Machine." 37. Morgenson, "Behind Insurer's Crisis." 38. The Economist, "The Great Untangling." 39. Morgenson, "Behind Insurer's Crisis." 40. Mollenkamp and others, "Behind AIG's Fall." 41. Gerth, "Was AIG Watchdog Not Up to the Job?" 42. Taub, "FAS 157 Could Cause Huge Write-Offs." 43.

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

That’s how fast, and how completely, things can go wrong for a society if its banks go bad. This is because banks are central to the operation of a developed economy; in particular, they are central to the creation of credit, and credit is as important to the modern economy as oxygen is to human beings. When the banks go wrong, everything goes wrong: a bank crisis gives you that slamming-the-car-into-reverse feeling. This is how it’s supposed to work. A well-run bank is a machine for making money. The basic principle of banking is to pay a low rate of interest to the people who lend money and charge a higher rate to the people who borrow it. The bank borrows at 3 percent (say), and lends at 6 percent, and as long as it keeps the two amounts in line and makes sure that it lends money only to people who will be able to pay it back, it will reliably make money forever.

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This might especially be the case in Europe, where banks and governments have delayed the reckoning with bad assets and bank insolvency for as long as they can. If the global economic crisis can be reduced to one single phenomenon, it is this: the fact that nobody knows which banks are solvent. Because banks are crucial to the creation and operation of credit, a bank crisis leads directly to a credit crunch. It’s also why the huge amounts of money being pumped into the banking sector by governments are tending not to do the thing they were supposed to do, that is, restart lending to businesses and consumers. That’s because—and here we can have that very rare thing, a brief moment of sympathy for the banksters—the banks are being given two totally incompatible goals.

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There is a sour joke among financial types, referring to the chronic pessimism and down-speak of economics, “the dismal science”: they say that “economists have predicted seven of the last three downturns.” Ho ho. But they sure didn’t predict this one. Just to repeat the basic point: a 20 percent drop in U.S. home prices, not on the face of it an extraordinarily unlikely thing, was enough to cause a global banking crisis that nearly destroyed the entire system, followed by a global recession verging on depression. So why didn’t more economists seem aware of that possibility? Has the profession really drifted that far away from the real world? The short answer is that with some stellar exceptions—Robert Shiller, Nouriel Roubini, Paul Krugman, and John Kay conspicuous among them—yes, it has.

Broken Markets: A User's Guide to the Post-Finance Economy by Kevin Mellyn

Alan Greenspan, banking crisis, banks create money, Basel III, Bear Stearns, Bernie Madoff, Big bang: deregulation of the City of London, bond market vigilante , Bonfire of the Vanities, bonus culture, Bretton Woods, BRICs, British Empire, business cycle, buy and hold, call centre, Carmen Reinhart, central bank independence, centre right, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, compensation consultant, corporate governance, corporate raider, creative destruction, credit crunch, crony capitalism, currency manipulation / currency intervention, currency risk, disintermediation, eurozone crisis, fiat currency, financial innovation, financial repression, floating exchange rates, Fractional reserve banking, Glass-Steagall Act, global reserve currency, global supply chain, Home mortgage interest deduction, index fund, information asymmetry, joint-stock company, Joseph Schumpeter, junk bonds, labor-force participation, light touch regulation, liquidity trap, London Interbank Offered Rate, low interest rates, market bubble, market clearing, Martin Wolf, means of production, Michael Milken, mobile money, Money creation, money market fund, moral hazard, mortgage debt, mortgage tax deduction, negative equity, Nixon triggered the end of the Bretton Woods system, Paul Volcker talking about ATMs, Ponzi scheme, profit motive, proprietary trading, prudent man rule, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, rising living standards, Ronald Coase, Savings and loan crisis, seigniorage, shareholder value, Silicon Valley, SoftBank, Solyndra, statistical model, Steve Jobs, The Great Moderation, the payments system, Tobin tax, too big to fail, transaction costs, underbanked, Works Progress Administration, yield curve, Yogi Berra, zero-sum game

Second, they became too large to manage effectively—something called “diseconomies of scale”—so bureaucracies and overheads multiplied, with bouts of reorganizations and head-count reductions as a periodic corrective. Innovation, customer service, and the ability to react to new competitors (except to buy them and kill them) all suffered from gigantism. Given where the industry had arrived by 2007, the remarkable thing is not that there was a banking crisis on the scale we experienced, but that one didn’t occur earlier. How Government Policy and Central Banks Shaped the Market Meltdown As mentioned at the beginning of this chapter, the dominant narrative has it that the greedy banks on Wall Street somehow caused the crisis in the financial markets by taking reckless risks in pursuit of outsized bonuses.

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It is easy with 20/20 hindsight to be critical of men and women scrambling to keep financial Armageddon at bay. What did emerge from all the skin-of-ourteeth crisis management, however, were three key facts. First, the too-big-to-fail institutions ended up even bigger and became almost impossible to manage. The Japanese banking crisis had resulted in something similar. Second, vast amounts of public money spent on the bank bailouts and driving interest rates to record lows left the authorities with little ammunition in case the crisis took a turn for the worse—indeed, countries such as Ireland were driven to the brink by guarantees of banking system deposits.

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The Maastricht Treaty—the treaty that launched the European Union—left no line of retreat; joining the euro was specifically intended to be an irreversible decision with no escape hatches allowed. That said, major banks and corporations around the world are beginning to think the unthinkable and plan for the collapse of the euro under different scenarios. Why a European Banking Crisis Threatens America The 1990s saw the substantial concentration of deposits in the largest institutions within the US banking system, and the 2008 panic triggered shotgun weddings that put a capstone on the progress. Today, the majority of the US banking and payments system operates within and between seven or eight banks.These same banks provide much of the short-term funding and liquidity needed by an even more concentrated investment-banking industry, as well as the clearing and settlement of trades on the stock exchanges.

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

At last, to protect the thrifts, the Fed in 1966 refused to lift bank deposit-rate ceilings again, while simultaneously putting the brakes on monetary expansion. The result was an even more severe bank “credit crunch.” Finally, in August 1966, the Fed reversed its monetary policy again, this time to “rescue” the banks from its own misguided policies. The banking crisis of 1966—the first “financial crisis” (to adopt the conventional, hyperbolic vernacular) in the United States since the Great Depression—was a direct consequence of Regulation Q restrictions combined with erratic Fed monetary policy. This was also true of later disintermediation crises, including the thrift crisis of 1969.

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“The country banks could hardly do other than follow these changes in the credit situation” by expanding their own issues (Nevin and Davis 1970: 43). For some later episodes (when the “division of labor” should have been even more firmly established) the evidence against the Bank is still more conclusive. A recent case in point was the “fringe bank” crisis of 1973–74. According to Margaret Reid (1982), that crisis was based on a boom willfully engineered (with the Bank of England’s help) by the Heath government in its “dash for growth.” Nor has the Bank of England been the only central bank to be guilty of errors of commission (and not merely of omission) in modern times.

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But from early 1924 to the spring of 1928 it was used to finance a boom and to finance a stock market boom.” The Fed’s efforts nevertheless proved inadequate to save the pound. That currency’s convertibility, already jeopardized by France’s actions, was dealt a further, fatal blow by the Austrian banking crisis, which in turn triggered a general abandonment of sterling and, hence, of the exchange standard. As Gregory (1935: 57) explains, the attacks on sterling were understandable, if not justified, for under the gold exchange set-up, “any failure of London to meet demands in gold meant that the security behind, e.g., the Dutch currency, was in effect reduced in value.

The Panama Papers: Breaking the Story of How the Rich and Powerful Hide Their Money by Frederik Obermaier

air gap, banking crisis, blood diamond, book value, credit crunch, crony capitalism, Deng Xiaoping, Edward Snowden, family office, Global Witness, high net worth, income inequality, Jeremy Corbyn, Kickstarter, Laura Poitras, liquidationism / Banker’s doctrine / the Treasury view, mega-rich, megaproject, Mikhail Gorbachev, mortgage debt, Nelson Mandela, offshore financial centre, optical character recognition, out of africa, race to the bottom, vertical integration, We are the 99%, WikiLeaks

[ ] In Reykjavik we meet our colleague Jóhannes Kristjánsson, arguably Iceland’s best-known investigative journalist, with the most accolades to his name. He used to work in public radio in Iceland, and produced remarkable material on the causes of the banking crisis in his country. He has also conducted undercover research into drug abuse and exposed sex offenders. He is currently working as a freelance journalist, focusing entirely on the Prometheus project. His story is bound to capture the attention of the masses in this country, whose political landscape was shattered by the banking crisis of 2008. Prime Minister Sigmundur Gunnlaugsson, you will recall, cropped up early on in our investigations. If you remember, he and his wife, through the intermediary of the Luxembourg branch of Landsbanki, set up a company with Mossfon in the British Virgin Islands: Wintris Inc.

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In his bestseller The Unwinding, US author George Packer describes, precisely and without getting worked up, how the financial elite have dominated the US economy, the absurd repercussions this has for the rest of the country and why citizens who weren’t previously especially politically engaged suddenly got involved in the Occupy Wall Street movement: because they felt betrayed by ‘them up there’. By men like Sanford I. Weill, the founder of what was once the biggest bank in the world, Citibank. The banker, with his aristocratic appearance, is considered to be one of the figures who was jointly responsible for the banking crisis of 2008 that was caused by irresponsible deals. Sanford I. Weill is a hate figure of the Occupy Wall Street movement and was, of course, a Mossack Fonseca client. He held a shell company called April Fool with the Panamanian law firm. He gave the same name to his sixty-metre yacht, because Sandy, as he’s known to his friends, met his wife Joan on 1 April 1954.3 That’s the world of the 1 per cent

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This may also be the case for Ólöf Nordal, the serving interior minister, who according to Jóhannes had power of attorney for a company named Dooley Securities S.A.8 [ ] The Panama Papers will place the government under extreme pressure to explain itself. ‘The people of Iceland have gone through so much since the bank crisis that now they will have zero sympathy with an extremely rich prime minister and his extremely rich wife, who used an offshore company to secretly buy bank bonds,’ Jóhannes explains. He is in an absurd situation: he has the material that may force the prime minister of his country to step down, he has the story of the year ready and waiting, and has had since spring 2015 – yet he still has to wait, and keep on waiting, until we are all ready to publish in spring 2016.

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

Outputs fluctuated much less than in the previous periods, not least thanks to Keynesian fiscal policy, which increased government spending during downturns and reduced it during booms.20 The rate of inflation, that is, the rate at which the general price level rises, was relatively low.21 And there was a very high degree of financial stability. During the Golden Age, virtually no country was in banking crisis. In contrast, since 1975, anything between 5 and 35 per cent of countries in any given year have been in banking crisis, except for a few years in the mid-2000s.22 So in every measure the Golden Age was a remarkable period. When Harold Macmillan, the British prime minister, said, ‘You’ve never had it so good,’ he wasn’t exaggerating. Exactly what lay behind this sterling economic performance, which was unprecedented and has since been unparalleled, is a matter of an ongoing dispute.

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The Brazilian crisis followed in 1999 and the Argentinian one in 2002, both in large part the results of financial deregulation. These are only the prominent ones, but the world has seen so many more financial crises since the mid-1970s. According to a widely cited study,17 virtually no country was in banking crisis between the end of the Second World War and the mid-1970s, when the financial sector was heavily regulated. Between the mid-1970s and the late 1980s, the proportion of countries with banking crisis rose to 5–10 per cent, weighted by their share of world income. The proportion then shot up to around 20 per cent in the mid-1990s. The ratio then briefly fell to zero for a few years in the mid-2000s, but went up again to 35 per cent following the 2008 global financial crisis.

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REAL-LIFE NUMBERS There has been a vast increase in the frequency of financial crises For most people, the 2008 global financial crisis is probably proof enough that the new financial system has failed to deliver on its promises for greater efficiency and stability. But it is important to note that the 2008 crisis was presaged by many earlier, smaller crises in the last three decades. The list, even counting only the major ones, is impressive. In 1982, Chile got into a major banking crisis, following the radical financial market liberalization in the mid-1970s under the Pinochet dictatorship. In the late 1980s, the Savings and Loan (S&L) companies in the US – also known as ‘thrifts’ – got into massive trouble, having been allowed by the government to move into more risky, but potentially higher-yielding, activities, such as commercial real estate and consumer loans.

Buying Time: The Delayed Crisis of Democratic Capitalism by Wolfgang Streeck

"there is no alternative" (TINA), "World Economic Forum" Davos, activist fund / activist shareholder / activist investor, air traffic controllers' union, Alan Greenspan, banking crisis, basic income, Bretton Woods, business cycle, capital controls, Carmen Reinhart, central bank independence, collective bargaining, corporate governance, creative destruction, currency risk, David Graeber, deindustrialization, Deng Xiaoping, Eugene Fama: efficient market hypothesis, financial deregulation, financial engineering, financial repression, fixed income, full employment, Garrett Hardin, Gini coefficient, Growth in a Time of Debt, income inequality, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, knowledge economy, labour market flexibility, labour mobility, late capitalism, liberal capitalism, low interest rates, means of production, moral hazard, Myron Scholes, Occupy movement, open borders, open economy, Plutonomy: Buying Luxury, Explaining Global Imbalances, profit maximization, risk tolerance, shareholder value, too big to fail, Tragedy of the Commons, union organizing, winner-take-all economy, Wolfgang Streeck

More critical could be the question of whether, if monetary doping with its potentially dangerous side effects has to be abandoned at some point, other growth drugs will be available to keep capital accumulation under way in the rich countries of the world. On this we can only speculate – as I do in the concluding remarks of this book. A NEW TYPE OF CRISIS Capitalism in the rich democratic countries has for several years now been in the throes of a threefold crisis, with no end in sight: a banking crisis, a crisis of public finances, and a crisis of the ‘real economy’. No one foresaw this unprecedented coincidence – not in the 1970s, but also not in the 1990s. In Germany, because of special conditions13 that had arisen more or less by chance and seem rather exotic to the outside world, the crisis hardly registered with people for years, and there was a tendency to warn against ‘hysteria’.

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In Germany, because of special conditions13 that had arisen more or less by chance and seem rather exotic to the outside world, the crisis hardly registered with people for years, and there was a tendency to warn against ‘hysteria’. In most of the other rich democracies, however, including the United States, the crisis cut deep into the lives of whole generations and by 2012 was in the process of turning the conditions of social existence upside down. 1) The banking crisis stems from the fact that, in the financialized capitalism of the Western world, too many banks had extended too much credit, both public and private, and that an unexpectedly large part of this suddenly turned bad. Since no bank can be sure that the bank with which it does business will not collapse overnight, banks are no longer willing to lend to one another.14 There also is the possibility that customers may feel compelled at any moment to start a run on banks and withdraw their deposits for fear they may otherwise lose them.

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The increased risk of government insolvency in a number of countries is reflected in the higher costs of old and new debt. To regain the ‘confidence’ of ‘the markets’, governments impose harsh austerity measures on themselves and their citizens, with mutual supervision within the European Union, going as far as a general ban on new borrowing. That does not help to alleviate the banking crisis, or a fortiori the recession in the real economy. It is even debatable whether austerity reduces the debt burden, since it not only fails to promote growth but probably has a negative impact on it. And growth is at least as important as balanced budgets in lowering the national debt. FIGURE 1.1 Public debt as percentage of national product: OECD average Countries in unweighted average: Austria, Belgium, Canada, France, Germany, Italy, Netherlands, Norway, Sweden, UK, USA Public debt as percentage of national product: seven countries Source: OECD Economic Outlook: Statistics and Projections 3) Finally, the crisis of the real economy manifest in high unemployment and stagnation (Fig. 1.2)16 partly stems from the fact that firms and consumers have difficulty in obtaining bank loans – because many of them are already deep in debt and the banks are risk-averse and short of capital – while governments have to curb their expenditure or, if it can no longer be avoided, raise taxes.

Britannia Unchained: Global Lessons for Growth and Prosperity by Kwasi Kwarteng, Priti Patel, Dominic Raab, Chris Skidmore, Elizabeth Truss

Airbnb, banking crisis, Carmen Reinhart, central bank independence, clockwatching, creative destruction, Credit Default Swap, demographic dividend, Edward Glaeser, eurozone crisis, fail fast, fear of failure, financial engineering, glass ceiling, informal economy, James Dyson, Kenneth Rogoff, knowledge economy, long peace, margin call, Mark Zuckerberg, Martin Wolf, megacity, Mexican peso crisis / tequila crisis, Neil Kinnock, new economy, North Sea oil, oil shock, open economy, paypal mafia, pension reform, price stability, profit motive, Ronald Reagan, Sand Hill Road, Silicon Valley, Stanford marshmallow experiment, Steve Jobs, Suez crisis 1956, tech worker, Walter Mischel, wealth creators, Winter of Discontent, working-age population, Yom Kippur War

But while the story that Canada’s success is down to better regulation is intuitively appealing, the reality is more complicated. In many ways, Canada has less regulation than the US. Canadian banks were never banned from interstate banking, or the union of retail and investment banking. The stability of Canadian banking is also old. Canada not only escaped a banking crisis in 2008, it also avoided a A Tale of Two Nations 35 crisis in 1930 in the wake of the Wall Street crash. Earlier still, Canada was unaffected by the US banking panics of 1893 or 1930.88 There are five major Canadian banks: the Royal Bank of Canada, the Toronto Dominion Bank, the Bank of Nova Scotia, the Bank of Montreal and the Canadian Imperial Bank of Commerce.

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McKinsey Global Institute, Debt and Deleveraging: Uneven Progress on the Path to Growth (2012). 77. http://www.guardian.co.uk/politics/2003/may/07/labour.politicalcolumnists 78. http://www.guardian.co.uk/media/1999/dec/22/bbc.futureofthenhs 79. http://www.guardian.co.uk/politics/2000/mar/17/comment.pollytoynbee 80. http://www.guardian.co.uk/society/2001/mar/08/3 81. http://www.guardian.co.uk/society/2001/nov/23/comment 82. http://blogs.ft.com/money-supply/2011/11/30/the-uk-hangover-getsworse/#axzz1h5FjxNF3 83. http://www.economist.com/node/18719530 84. International Monetary Fund, World Economic Outlook Database (April 2011). 85. http://www.economist.com/node/18719530 86. http://www.imf.org/external/np/ms/2009/030909a.htm 87. http://www.economist.com/node/16060113 88. Michael Bordo, Angela Redish and Hugh Rockoff, Why Didn’t Canada Have a Banking Crisis in 2008 (or in 1930, or in 1907, or in 1983) (2010). 89. http://www.economist.com/node/16060113 90. http://www.ft.com/cms/s/0/db2b340a-0a1b-11df-8b23-00144feabdc0. html#axzz1oEUdacsd 91. http://www.ft.com/cms/s/0/75b43310-ebee-11de-930c-00144feab49a. html#axzz1nrHw5tUL 92. Heritage Foundation, Index of Economic Freedom (2011).

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Balls, Edward, Euro-Monetarism: How Britain was Ensnared and How it Should Escape (Fabian Society, 1992). Blanden, Jo, and Stephen Machin, Recent Changes in Intergenerational Mobility in Britain (Centre for Economic Performance, 2007). Bordo, Michael D., Angela Redish and Hugh Rockoff, Why Didn’t Canada have a Banking Crisis in 2008 (or in 1930, or in 1907, or in 1983) (2010). Bourgon, Jocelyn, Program Review: The Government of Canada’s Experience Eliminating the Deficit, 1994–99: A Canadian Case Study (Institute for Government, 2009). Bradshaw, Jenny, et al., PISA 2009: Achievement of 15-Year-Olds in England (NFER, 2010).

The Liberal Moment by Nick Clegg, Demos (organization : London, England)

banking crisis, credit crunch, failed state, Glass-Steagall Act, housing crisis, income inequality, mass immigration, mass incarceration, Right to Buy, smart grid, too big to fail, Winter of Discontent

And however long this recession may last one thing is already certain: we will be left with a legacy of massive public debt and the enormous challenge of eradicating a structural deficit that could be as high as 10 per cent of GDP. Britain is, of course, not alone. The whole world’s economy has suffered an enormous shock stemming from the credit crunch and banking crisis. It would be wrong to pretend that Britain is not suffering, in part, as a consequence of this global recession. However much political opponents may like to blame problems on the government of the day, it is only fair to acknowledge that Britain’s problems are not all home-grown. The British Treasury could not have prevented the collapse of the US housing market, the collapse of the Icelandic financial system or the failure of Lehman Brothers.

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But those who invest in these high-risk products should not expect any more protection than punters in betting shops and casinos. 41 Banking should be the servant of the economy, not its master. Liberal Democrats have long argued that politicians should not be in thrall to the money centre of the City, but support diverse, local banking infrastructure instead. In the aftermath of the banking crisis, now is the time to make this change – something Liberal Democrat and other councils are already doing by establishing or supporting credit unions. But we can go further. We should be using the taxpayer’s stake to break up the big banks so that we can rebuild the kind of local banking and lending infrastructure that is effective in Germany and the USA, but which has been allowed to dwindle here.

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

German tourists pulled their holiday bookings. In London, the Eurozone Contingency Committee sat at the Treasury, featuring Mervyn King, Adair Turner and cabinet ministers William Hague and Vince Cable, chaired by Chancellor George Osborne. ‘Throughout 2011–12 we were very worried about the Eurozone precipitating a UK financial banking crisis again: we created an emergency committee on Eurozone contingency planning, which for a while was meeting every other week, even every week.’ Strikingly, German politicians and leading members of the ECB popped up in the days after the inconclusive May election to say that a Grexit would be ‘manageable’, as it would ‘do more harm to Greeks than the Eurozone’.

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‘The fall in GDP according to the Office for National Statistics was caused by the very bad weather,’ Osborne insisted. ‘But David Cameron and I would like the GDP figure to be stronger, even without the snow. The truth is that we always said it would be a challenging recovery. We’ve had the deepest recession of our lifetime, the biggest banking crisis since the 1930s. There is a new government trying to sort out this mess. It was always going to be choppy.’ I asked him whether he would alter his plan if the negative trend continued. ‘I’m not in the business of speculation,’ he replied. ‘I look at the central forecast for the British economy, which is for sustained growth and for rising employment.

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Another case, still to be heard, questions Kaupthing’s emergency pre-collapse cash call from the Gulf in September 2008. The money for the purchase by a Qatari sheikh of a large stake in Kaupthing ultimately came from a bank in Iceland called… Kaupthing. The charge is that the bank lent the money to instil confidence in itself just ahead of the massive bank crisis. It is certainly documented that the companies connected to Qatari investors were granted large loans by Kaupthing around the same time as buying a 5 per cent stake in the bank. The defendants in the case deny the charges. But whatever happens to Hauksson’s cases, the process has been instructive.

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

Here Bernanke and Paulson disagreed, perhaps reflecting the differing mind-sets of a nonpolitical former economics professor and a Wall Street deal maker thrust into a political world. Their disagreement turned out to be incredibly ironic. The intellectual Federal Reserve chairman favored injecting capital directly into banks. An expert on economic history, Bernanke knew that publicly provided capital almost inevitably follows in the wake of a banking crisis. Besides, providing banks with new capital should leverage the government’s money. At least in theory, each $1 of additional bank capital should support $10 or so of renewed lending. (We’ll come back to that fallacious reasoning shortly.) Many financial market experts such as the famed investor George Soros and noted economists Paul Krugman and Joseph Stiglitz also urged that alternative.

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By guaranteeing essentially all bank liabilities in September 2008, and subsequently assuming those debts as its own, the Irish government added about 40 points to its debt-to-GDP ratio. In theory, the Irish government was a highly creditworthy borrower that could obtain credit on favorable terms and shoulder the debt burden while Irish banks recovered. In practice, Ireland’s rash actions turned a banking crisis into a sovereign debt crisis. Ireland’s annual government budget deficit in 2010 was a shocking 32 percent of GDP, likely setting a modern-day world record. CRISES HERE AND THERE: DIFFERENCES So much for similarities. There are also numerous differences, most of them stemming from the fact that the seventeen countries of the eurozone share a common currency and a common central bank—but not a common government.

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It began to look like the famous old cliché applied to the euro: You can’t live with it, and you can’t live without it. DON’T BANK ON IT So far, I have followed common usage by referring to the mess in Europe as the sovereign debt crisis. Investors are worried about the ability of several European governments to pay their bills. But it is also a European banking crisis: Investors are worried about the solvency of many of Europe’s largest banks. Indeed, the two crises are inextricably linked. Part of the governments’ debt problems derive from the expense of bailing out their banks. Europe’s major banks also own a great deal of government debt, on which they can ill afford to take losses.

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

These lenders skillfully avert new rules by creating new products, crossing state lines, or escaping to do business from Native American reservations. They cannot be regulated away because the payday lending industry is doing what any successful business does: filling a market need. One solution to our present-day banking crisis is to reinvigorate or replicate local banks and cooperatives so that they can again do what they did successfully for many years—overcome the costs of lending to the poor through a tight-knit membership with mutual ownership. Over the past several decades, nearly all of the government and industry initiatives aimed at financial inclusion have focused on community efforts to bank the poor—Jefferson’s localism still runs deep in banking politics.

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Unfazed by the largest banks’ opposition to his proposed reforms, Roosevelt used the public’s anger at the banks and the unit bankers’ support to catalyze the legislature to pass these measures.80 In President Roosevelt’s famous inauguration speech, he justified this broad-reaching legislation. When he told the public that “the only thing we have to fear is fear itself,” he was addressing the irrational bank runs that turned the tough economic times into an unprecedented banking crisis. He acknowledged the people’s suffering and placed blame directly at the foot of the bankers: The rulers of the exchange of mankind’s goods have failed, through their own stubbornness and their own incompetence, have admitted their failure, and abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men.… Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence.

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The Glass-Steagall Act, the pillar of the New Deal banking reforms, thus entrenched the doctrine of “separation of banking and commerce” in U.S. banking regulation.82 The act also contained interest rate limits—the amount a bank could offer for deposits—intended to deter competition among banks. Reduced competition, it was believed, would lead to a more dispersed banking sector and more credit availability. These reforms were a response to the recent banking crisis, but they also revealed a Jeffersonian and Brandeisian disdain for concentrated bank power. Although they were intended to make banks safer, they were also meant to limit banks’ market reach and power. A few policymakers were convinced that too much bank power and concentration caused the Great Depression, although the conclusion has since been contested.83 Brandeis, Roosevelt, and Carter Glass—much like their Populist predecessors—saw bank power as one of the great social problems of the day.

The 99.998271% by Simon Wood

banking crisis, clean water, drone strike, equal pay for equal work, Julian Assange, Occupy movement, offshore financial centre, Steve Jobs, Twitter Arab Spring, WikiLeaks

If a true Democrat, someone who is not a Wall Street pawn, someone who is popular and has no skeletons in the closet, were to challenge Obama for the Democratic nomination, and if that person ran on a platform (with cast-iron promises) of ending the wars, cutting military spending, taking money out of politics, closing down the NSA database, ending the drone program, bringing the CIA and the Pentagon under control, restoring all guarantees of human rights (including the abolition of indefinite detention), social justice, transparency of government, reversing deregulation of the financial industries, retroactive justice for everyone responsible for bringing about the Iraq War and the 2008 banking crisis, electoral reform, and all the other things peace-loving people actually want, Obama and any Republican candidate would have a serious problem on their hands. In the next election, as the current Republican candidates are one and all almost unelectable, even such a true 42 Democrat could win.

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Cost The deep reach of the internet into almost every home in developed countries around the world has removed the problem of cost, always the main obstacle to direct democracy in the past. Past Attempts It is true that past experiments with direct democracy have failed, but there could be many reasons for this. The Direct Democracy Party of New Zealand existed from 2005 to 2009, partly as a reaction to the banking crisis and mounting national debt. Thirty-two party members stood as candidates in the 2005 elections but only pulled in 782 votes, 0.03% of the electorate. This failure could be due to a lack of public recognition of (and media 57 disinterest in) the candidates and the party itself, as well as distrust of such a new and radical political entity.

The Asylum: The Renegades Who Hijacked the World's Oil Market by Leah McGrath Goodman

Alan Greenspan, anti-communist, Asian financial crisis, automated trading system, banking crisis, barriers to entry, Bear Stearns, Bernie Madoff, Carl Icahn, computerized trading, corporate governance, corporate raider, credit crunch, Credit Default Swap, East Village, energy security, Etonian, family office, Flash crash, global reserve currency, greed is good, High speed trading, light touch regulation, market fundamentalism, Oscar Wyatt, peak oil, Peter Thiel, pre–internet, price mechanism, profit motive, proprietary trading, regulatory arbitrage, reserve currency, rolodex, Ronald Reagan, side project, Silicon Valley, upwardly mobile, zero-sum game

Wendy Gramm as head of the Commodity Futures Trading Commission under Reagan and Phil Gramm as a prominent senator from Texas. Brooksley Born—The Stanford-educated lawyer and head of the Commodity Futures Trading Commission under Clinton in 1996 who was credited with foreseeing the global banking crisis that would tear Wall Street asunder. Played a major role in ousting Guttman from his position as Nymex chairman. Dr. James Newsome—Former strawberry and cattle farmer who, in 2001, was named head of the Commodity Futures Trading Commission, only to resign three years later to become Nymex president, CEO, and Schaeffer’s right-hand man.

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Magid’s dad came in from Long Island to make sure he didn’t crack up. I was scared. I kept asking him every day, ‘Are you still liquidating?’ We met with Phibro to see if they would take it. They said no. I didn’t know how to trade myself out of this stuff. It was like dealing with the toxic assets of the banking crisis. It takes the asshole who got you into the mess to get you out of it.” It took Magid three months to sell off the options contracts. He finally exited the positions at a loss of $500,000, a testament to his trading skills. Losing hundreds of thousands of dollars hurt, but it was a pain Guttman could live with.

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They were still allowed to place massive bets on a disappearing commodity with almost no money down, a circumstance that could have been prevented by Congress when it had the chance to vote on it in July 2008, just a few days after oil prices topped out. But instead it scuttled the measure. In the end, lawmakers were content to chastise Big Oil on TV. The truth of the matter was, when the power was in their hands, they could do nothing but waffle. On Wall Street, the devastation of the banking crisis had not chastened anyone who hadn’t lost their job. Traders, bankers, and lawyers were already walking around saying that nothing, in fact, had really happened. The meltdown, apparently, was only pro forma, a figment of everyone’s imagination. And they were even starting to believe it. After all, appearance was truth.

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

Between 2011 and 2015 Russia witnessed strong positive net migration due to an influx of hundreds of thousands of job seekers from former Soviet Satellite states, led by Ukraine. But the increasing numbers of talented Russians leaving the country outstripped this influx. More than 180,000 Russians left in 2013, five times more than those who departed in 2009 and close to peaks reached during the banking crisis in 1998. Those leaving were entrepreneurs, writers, scientists, and the sons and daughters of families that could afford to send their children abroad to study, in the hope that they could eventually settle outside Russia. Dinner table conversation among the Russian elite dwelled on how to secure a visa to a desirable foreign country and how to get one’s money out with the family.

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In short, the bulls argued, China was well positioned to pay off or forgive its own debts. The historical record casts doubt on the strength of these defenses, not only for China but for any country. Many other nations on the list of the thirty most extreme credit binges enjoyed some of the same advantages, but this did them no good. Taiwan suffered a banking crisis in 1995 despite having foreign exchange reserves that totaled 45 per cent of GDP, a slightly higher level than China had accumulated by 2014. Taiwan’s banks also appeared to hold more than ample deposits to back their loans, but that did not avert a crunch. Banking crises hit Japan in the 1970s and Malaysia in the 1990s, even though these countries had high domestic savings rates of around 40 percent of GDP, also well above the global average.

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† By 2015, I should note, some private financial industry researchers were publishing pieces on the connection between credit binges and slower economic growth, including “Untangling China’s Credit Conundrum” from Goldman Sachs that January and “Keeping a Wary Eye on the EM Credit Cycle” by JP Morgan that November. ‡ 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.

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

A credit collapse would have been debilitating for business. A eurozone sovereign debt crisis would have hobbled the ability of the governments of Italy, Spain, and France to respond to the epidemic. An inversion of the U.S. Treasury market, however, was a problem of a different order. Its implications went further even than the North Atlantic banking crisis of 2008. American government debts are the safe assets on which the entire structure of private finance rests. They are the foundation of America’s financial might and thus of the world order as we know it. Chapter 6 “WHATEVER IT TAKES,” AGAIN On Thursday, March 12, the news from the financial markets was grim.

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This was a state of financial panic, which if it had been allowed to develop, would have been more destabilizing even than the failure of Lehman Brothers in September 2008. * * * — In 2008 it had been mortgage-backed securities that almost brought the house down.7 The risks were concentrated on bank balance sheets on both sides of the Atlantic. A downturn in real estate, which triggered mortgage defaults, turned into a banking crisis. The prospect of bank failures forced interventions by central banks and treasuries in the form of asset purchases, to prop up markets for mortgage-backed securities, a desperate effort to supply liquidity to the ailing banks, and bailouts in the strict sense of the word, in the form of government stakes in the weakest banks.

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Low interest rates would be bad for their profit margins on lending. So their shares sold off hard. The setback to the banks was so severe that it caused a ripple of anxiety among the regulators.9 If the banks had been as weak in 2020 as they had been in 2008, the situation might well have been catastrophic. How catastrophic a coronavirus banking crisis might have been can be gauged by applying, hypothetically, the losses expected in the spring of 2020 to the balance sheets of the major U.S. banks as they were in 2008 at the time of the mortgage crisis. The result is horrifying. If the banks had been as weak in 2020 as they were in 2008, core loss-absorbing capital across the entire system would have been slashed to a low of 1.5 percent of assets, less than a sixth of what is considered safe.

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

The gold-exchange standard had been designed after World War II to safeguard global monetary stability. Nixon’s decision had short-term benefits, but longer-term risks. The five decades since then have seen paralyzing vicissitudes in advanced economies (let alone emerging markets): stagflation in the seventies; a US real estate bust leading to a savings and loan banking crisis in the eighties; a Scandinavian banking crisis in the early nineties; a European Exchange-Rate Mechanism currency crisis in 1992; the Japanese great stagnation and deflation since the nineties after the collapse of its real estate bubble; the collapse of Long-Term Capital Management (LTCM) despite two Nobel laureates at its helm in 1998; the internet boom and subsequent bust and corporate defaults of the early 2000s; the housing and credit boom-and-bust leading to the Global Financial Crisis beginning in 2007; the eurozone crisis of the early 2010s; and of course the COVID-19 crisis of 2020.

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Following vigorous deregulation of its banks, Sweden and other Scandinavian economies experienced turmoil that foreshadowed the global financial crisis. “Banks, mortgage institutions, finance companies, and others now entered a new environment where they were free to compete on the domestic credit market,” according to author Peter Englund in a report on the Swedish banking crisis: The impact of the deregulation was immediately apparent. The rate of increase of new lending from financial institutions, which varied between 11 and 17 percent per year during the first half of the 1980s, jumped to 20 percent in 1986. Over the 5 year period, 1986-1990, lending increased by 136 percent (73 percent in real terms).15 As in the United States, Swedish legislators and policy makers stood aside despite record low unemployment and prices rising faster than in other countries.

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Los Angeles Times, March 21, 1999, https://www.latimes.com/archives/la-xpm-1999-mar-21-fi-19380-story.html. 14. Leonard Silk, “Climbing Interest Rates,” New York Times, July 10, 1974, https://www.nytimes.com/1974/07/10/archives/climbing-interest-rates-fed-maintains-tight-antiinflationary-policy.html. 15. Peter Englund, “The Swedish Banking Crisis, Roots and Consequences,” Oxford Review of Economic Policy 15, no. 3 (Autumn 1999): 84, https://www.jstor.org/stable/23606686. 16. W. H. Buiter, G. Corsetti, and P. A. Pesenti, Financial Markets and European Monetary Cooperation (Cambridge: Cambridge University Press, 1998), https://books.google.com/books?

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

China, for example, is the world’s second-largest economy, yet individuals may not withdraw more than $50,000 per annum from the country. The banking crisis in Cyprus in 2013 saw capital controls introduced there. Currently, cash withdrawals are limited to €300 a day, the cashing of cheques is banned and large cash transfers are vetted. Accounts with over €100,000 saw funds confiscated. Capital controls now seem to be being imposed in the Ukraine due to its current instability. Reports suggest nationals are finding it harder and harder to get their money out of Spain and other parts of impoverished Southern Europe, and the insolvency of Spain’s banks makes another banking crisis in the region look probable.

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Bitcoin has been dubbed ‘money without government’ and ‘money without borders’. You can send money to another country as easily as you can an email, and nearly as instantly. There is no need to smuggle 60 Krugerrands in your pocket if you’re fleeing an oppressive regime. People are already starting to use Bitcoin in this way. When the Cypriot banking crisis hit during the spring of 2013 and fear of capital controls loomed across Southern Europe, the bitcoin price rose from about $15 to north of $200. In the latter part of 2013, the price ballooned again, rising from about $130 to over $1,000 due to Chinese interest. Much of that interest was speculative, but some of it was also money fleeing the country.

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

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

The US Financial Crisis Inquiry Commission blamed failures in regulation; breakdowns in corporate governance, including financial firms acting recklessly; excessive borrowing and risk by households and Wall Street; policymakers ill-prepared for the crisis; and systematic breakdown in accountability and ethics.1 The UK’s Independent Commission on Banking cited factors including “global imbalances, loose monetary policy, light-touch regulation, declining under-writing standards, widespread mis-pricing of risk, a vast expansion of banks’ balance sheets, rapid growth in securitized assets”.2 The UK economist Roger Bootle diagnosed the crisis in a more straightforward way in his 2009 book The Trouble with Markets: “greedy bankers and naive borrowers, mistaken central banks and inept regulators, insatiable Western consumers and over-thrifty Chinese savers”.3 Others have also directly cited bankers’ greed. Gordon Brown, the UK Prime Minister at the time the financial crisis developed, in his book examining the financial crisis, Beyond the Crash, has blamed “excessive remuneration at the expense of adequate capitalisation” for the UK banking crisis.4 It is clear that incentives in the form of the high levels of pay received by investment bankers creating and trading seriously flawed products was a contributing factor to the financial crisis. The asymmetry of risk and reward in investment bankers’ remuneration can incentivise risk-taking: there is an opportunity to be paid very well if a trade is profitable, but the investment banker does not actually lose money (in the form of cash – the value of any equity owned in the investment bank can reduce) if a trade is lossmaking.

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Governments failed to appropriately increase the effectiveness of oversight of credit rating agencies in the wake of the failures of Enron, WorldCom and so on. • Sovereign debt crises and defaults are nothing new. Looking back to Latin America in the 1980s and early 1990s, and also at the impact of financial crises in major economies, such as the Russian banking crisis in 1997 or the UK in the 1970s, sovereign debt even in relatively stable countries has periodically exhibited relatively high levels of risk. Given the nature of a sovereign country, and its responsibilities (providing services such as health care, defence, education) for and from (e.g., tax raising) its citizens, the ethical position of trading in sovereign debt may have different characteristics than trading in corporate debt. • Strategies involving short-selling are not novel.

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Remuneration can be considered an ethical issue from a number of perspectives, notably relating to fairness (i.e., equity and distributive justice), and also relating to the issue discussed on p. 24 of investment banks receiving Ethical Issues – Internal 135 a “free-ride”. There is an argument that the banking crisis was caused by greed. This has been advanced by, among others, former UK Prime Minister Gordon Brown. It can be argued that the cause of the financial crisis (in the UK) was excess bank bonuses resulting in a deficiency in bank capital. This argument contends that the payment of bonuses left the banking sector short of capital, and therefore the financial crisis was (at least in part) the result of greed.

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

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

Since, moreover, the Federal Reserve's efforts to expand or contract the money supply and so lower or raise interest rates are mediated by the banks, a breakdown in the banking system can loosen the Federal Reserve's control over the money supply, opening the way to deflation. That is why the kind of shock to the economy that comes from a banking crisis is potentially more serious than a shock created by a technological change. Increasing the money supply reduces the value of money, and so creates a threat of inflation, because, initially at least, more money is buying the same amount of goods and services. But in a depression the threat of inflation lies in the future.

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The profession's failure to foresee the depression, and its unpreparedness to suggest timely, effective responses to it, will stimulate fresh thinking in macroeconomics and financial economics. It may even lead to a merger between depression economics, a branch of macroeconomics, and finance viewed as a distinct field of economics (much as statistics is a distinct field of mathematics). Recessions precipitated by a banking crisis are more likely than other recessions to turn into depressions because of the severe negative effect of a breakdown in the credit system on personal consumption expenditures, an effect that sets the stage for deflation. Maeroeconomists are the experts on recessions and depressions, finance theorists on the operation of the financial system.

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They did this by eliminating the limits on federal deposit insurance of bank deposits and by extending that insurance to checkable accounts in money market funds, but more important by bailing out failing firms deemed "too big to fail"—an incentive for corporate giantism and financial irresponsibility (which go hand in hand because the difficulty of controlling subordinates grows with the size of an organization). The government gratuitously disrupted the operations of hedge funds by limiting short selling—at the height of the banking crisis the Securities and Exchange Commission forbade short selling of financial stocks. And by substantially increasing the federal deficit, the government's responses to the crisis are sowing the seeds of a future inflation. But of these criticisms, the main ones — the creation of moral hazard and the planting of the seeds of a future inflation—concern the unavoidable side effects of any effective measures to limit a depression.

The Joy of Tax by Richard Murphy

banking crisis, banks create money, carbon tax, carried interest, correlation does not imply causation, en.wikipedia.org, failed state, full employment, Gini coefficient, Global Witness, green new deal, high net worth, Jeremy Corbyn, land value tax, means of production, Modern Monetary Theory, Money creation, offshore financial centre, price elasticity of demand, quantitative easing, race to the bottom, savings glut, seigniorage, The Spirit Level, The Wealth of Nations by Adam Smith, transfer pricing

So, for example, taxes on carbon and other forms of pollution are charged because the emission of noxious substances imposes costs, both now and, through climate change, in the future. A similar externality that has potential impact upon the collective wealth of others is created when trading takes place through limited liability companies. If these fail the cost of their doing so falls in part on their creditors and sometimes more widely onto society at large, as the banking crisis of 2008 proved. Income recorded in a limited liability company should, as a result, be subject to higher rates of tax than are charged on income recorded in other ways. This logic of taxing generic externalities to correct market failures is not, however, the rationale for all charges of this type: taxes on tobacco, alcohol and road use do not fit within this framework.

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accountability 179, 237 see also under HMRC accountants 69, 101–2, 114, 116, 217 accounting rules 88 Adam Smith Institute 70, 71, 134+n advisers 44, 101–2, 114–15, 153, 226 air travel 29, 176, 237 alcohol 64, 74, 191 alienation 31, 42, 65 allowances 16, 196, 199, 224 see also personal allowances Amazon 135 anarchism 156 anarchy 41 anonymity 100, 222 see also secrecy anti-avoidance principle see under tax avoidance appeals systems 118, 220 ARC (Association of Revenue and Customs) 203 Audit Office, National 205 austerity 68, 84, 90, 94–5, 102 Australia 189 Austria 146 Babylon 14–15, 22 balance 88 see also under government(s) balance of trade data 93 bank data 149, 232, 233 Bank of England 46+n, 49–52+n on banking 209, 231 on money and monetary policy 47+n, 48+n, 85–6, 208 ownership and control of 46+n, 49, 50, 51, 209 on savings and investment 48+n, 230–1 bank transactions, proposed tax on 188, 190, 194, 232–3, 236, 237 see also financial transactions tax bankers 69, 102, 217 banking crisis and crash (2008) 78, 79–80, 191 banks and banking 48–9, 50, 174, 181–2, 187, 209 and money creation 47–8, 208, 214 base rate (bank rate) 52n, 58 bedroom tax 235 Belgium 32 beliefs 39–40, 46n, 53 benefits systems 191–2 see also welfare benefits Bermuda 124, 135 Bible, references to taxation in 15, 16 Boston Tea Party 22, 64 Brazil 188–9 Budget Responsibility, Office for 205 Buffett, Warren 225 Buiter, Willem 78 burden of proof 196, 217, 224 burglary 36, 44 businesses assets 184 investment by 89, 92–3, 199 and tax on transactions 190 see also companies Butler, Eamonn 71 Cairns, Lord 111–12 Cameron, David 82 capital gains 182, 184, 224–6 capital gains tax 29, 31, 73, 224–6, 227, 228 capping council tax 30, 227 flat taxes and 75, 76, 78–9 carbon usage 190, 191, 233 Carney, Mark 83n Carville, James 23 case law 111–12 Cayman Islands 124 Center for Freedom and Prosperity 134 central banks 49, 53 see also Bank of England certainty 130–1 charities 42 Charter of Liberties 17, 22 child credits 235 children 192–3 CIA Factbook 34 citizen’s income 192–5 City of London 18–19, 187 climate change 63, 191, 233 climate change levy 237 Clinton, Bill 23 common law 153 Community Charge 33, 37, 186 see also poll taxes companies 138, 150, 184, 191 accounts, and taxation 198–9 beneficial ownership of 124, 149, 221–2 close 233–4 country-by-country reporting 124–7, 151, 201, 222 excess profits tax 200–1, 234 flat tax proposals and 73 and information exchange 184 large 100, 200, 204, 234 location and taxation 163, 197–8 multinational 124–7, 150–2, 198, 201, 222 real existence 40, 42 self-employment and 167, 168, 173 small 173, 198, 234 submission of accounts and tax returns 98–9, 221–2, 223 and UK residence rules 222–3 compliance 33–4, 35, 37, 146, 148 compulsion 31, 32, 35–8 conflict 16, 17, 19–21, 25, 37 consent 25–6, 32–8 Conservative Party 94 consultation 114–15, 218, 237 consumption, excessive, tax and 139, 176, 189–90, 233, 238 convenience 130–1 corporation tax 29, 109, 161, 233, 234 corruption 148–9, 204 council tax 29, 30, 31, 186, 227 country-by-country reporting see under companies courts 33, 39, 112, 153, 154 crash and banking crisis (2008) 78, 79–80, 83, 191 credit 57, 231 credits and debits 47, 88, 208 cross-subsidization 166 currency/currencies 55–6 see also money customs duties 14, 16, 119–20 CUT (carbon usage tax), proposed 190, 233 Daily Telegraph 28, 30, 36 Darling, Alistair 76 data access to for tax authorities 149–50, 201–2 automatic information exchange of 123–4, 127, 184 death, taxation and 13, 15, 226, 227 see also inheritance taxes debits and credits 47, 88, 208 debt 50–2, 213 trading 46+n, 50 see also loans decision-making 38, 106, 108, 115–16, 121, 128–9 default 196, 217 deficit spending 58, 215 see also government spending democracy 26, 27, 31, 32, 37, 38 and accountability 118 and consensus 44 influencing 31, 37 opposition to 41–2, 70–1, 78–9, 80, 84, 102–3 see also representation Department for International Development 110 Department of Taxation, proposed 219–21, 227 Devereux, Michael 109 devolution 115, 162–6 Dickens, Charles 86n disability benefits 192, 194 dividends 138, 168, 223, 231 Domesday Book 17 domicile, taxation and 197, 222 double-entry accounting 88 drugs trade 56 economics textbooks 48+n, 85–6 economy 58, 167–8, 210 effects of unemployment on 83 intervention following 2008 crash 79–80, 83 relationship to money and tax 88 reorganizing, taxation and 57–62, 66 sectors 87–8 sustainability 57 see also government(s) and growth education 102, 106–8, 158 efficiency 54–5, 130–1, 160–1 employment full 57, 158, 171, 215 issues concerning 83, 89, 167, 168, 172, 173 energy sources 63, 237 enterprise 136–7, 173, 225, 234 environmental issues 31, 63, 143, 176, 190–1, 233, 237 equity/equality 129–31, 137–45, 211, 212, 215 see also flat taxes and inequality equivalence 144 European Commission 151–2 European Parliament 65, 151 European Union 124, 126, 223, 237 expenses 196 exports 88 externalities 63–4, 190–1 feedback on effectiveness of tax decisions 108, 112 financial services 143, 174 see also banks and banking Financial Times 109 financial transactions information on 197, 201 volume destabilizing economy 188 financial transactions tax, proposed 187–9, 236 fiscal policy 58–60, 82–3, 104–5 flat taxes 68–80, 161 Franklin, Benjamin 13, 14 French revolution 23–4 fuel duties 30, 74 future generations, tax and 143, 176 Galbraith, J.

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accountability 179, 237 see also under HMRC accountants 69, 101–2, 114, 116, 217 accounting rules 88 Adam Smith Institute 70, 71, 134+n advisers 44, 101–2, 114–15, 153, 226 air travel 29, 176, 237 alcohol 64, 74, 191 alienation 31, 42, 65 allowances 16, 196, 199, 224 see also personal allowances Amazon 135 anarchism 156 anarchy 41 anonymity 100, 222 see also secrecy anti-avoidance principle see under tax avoidance appeals systems 118, 220 ARC (Association of Revenue and Customs) 203 Audit Office, National 205 austerity 68, 84, 90, 94–5, 102 Australia 189 Austria 146 Babylon 14–15, 22 balance 88 see also under government(s) balance of trade data 93 bank data 149, 232, 233 Bank of England 46+n, 49–52+n on banking 209, 231 on money and monetary policy 47+n, 48+n, 85–6, 208 ownership and control of 46+n, 49, 50, 51, 209 on savings and investment 48+n, 230–1 bank transactions, proposed tax on 188, 190, 194, 232–3, 236, 237 see also financial transactions tax bankers 69, 102, 217 banking crisis and crash (2008) 78, 79–80, 191 banks and banking 48–9, 50, 174, 181–2, 187, 209 and money creation 47–8, 208, 214 base rate (bank rate) 52n, 58 bedroom tax 235 Belgium 32 beliefs 39–40, 46n, 53 benefits systems 191–2 see also welfare benefits Bermuda 124, 135 Bible, references to taxation in 15, 16 Boston Tea Party 22, 64 Brazil 188–9 Budget Responsibility, Office for 205 Buffett, Warren 225 Buiter, Willem 78 burden of proof 196, 217, 224 burglary 36, 44 businesses assets 184 investment by 89, 92–3, 199 and tax on transactions 190 see also companies Butler, Eamonn 71 Cairns, Lord 111–12 Cameron, David 82 capital gains 182, 184, 224–6 capital gains tax 29, 31, 73, 224–6, 227, 228 capping council tax 30, 227 flat taxes and 75, 76, 78–9 carbon usage 190, 191, 233 Carney, Mark 83n Carville, James 23 case law 111–12 Cayman Islands 124 Center for Freedom and Prosperity 134 central banks 49, 53 see also Bank of England certainty 130–1 charities 42 Charter of Liberties 17, 22 child credits 235 children 192–3 CIA Factbook 34 citizen’s income 192–5 City of London 18–19, 187 climate change 63, 191, 233 climate change levy 237 Clinton, Bill 23 common law 153 Community Charge 33, 37, 186 see also poll taxes companies 138, 150, 184, 191 accounts, and taxation 198–9 beneficial ownership of 124, 149, 221–2 close 233–4 country-by-country reporting 124–7, 151, 201, 222 excess profits tax 200–1, 234 flat tax proposals and 73 and information exchange 184 large 100, 200, 204, 234 location and taxation 163, 197–8 multinational 124–7, 150–2, 198, 201, 222 real existence 40, 42 self-employment and 167, 168, 173 small 173, 198, 234 submission of accounts and tax returns 98–9, 221–2, 223 and UK residence rules 222–3 compliance 33–4, 35, 37, 146, 148 compulsion 31, 32, 35–8 conflict 16, 17, 19–21, 25, 37 consent 25–6, 32–8 Conservative Party 94 consultation 114–15, 218, 237 consumption, excessive, tax and 139, 176, 189–90, 233, 238 convenience 130–1 corporation tax 29, 109, 161, 233, 234 corruption 148–9, 204 council tax 29, 30, 31, 186, 227 country-by-country reporting see under companies courts 33, 39, 112, 153, 154 crash and banking crisis (2008) 78, 79–80, 83, 191 credit 57, 231 credits and debits 47, 88, 208 cross-subsidization 166 currency/currencies 55–6 see also money customs duties 14, 16, 119–20 CUT (carbon usage tax), proposed 190, 233 Daily Telegraph 28, 30, 36 Darling, Alistair 76 data access to for tax authorities 149–50, 201–2 automatic information exchange of 123–4, 127, 184 death, taxation and 13, 15, 226, 227 see also inheritance taxes debits and credits 47, 88, 208 debt 50–2, 213 trading 46+n, 50 see also loans decision-making 38, 106, 108, 115–16, 121, 128–9 default 196, 217 deficit spending 58, 215 see also government spending democracy 26, 27, 31, 32, 37, 38 and accountability 118 and consensus 44 influencing 31, 37 opposition to 41–2, 70–1, 78–9, 80, 84, 102–3 see also representation Department for International Development 110 Department of Taxation, proposed 219–21, 227 Devereux, Michael 109 devolution 115, 162–6 Dickens, Charles 86n disability benefits 192, 194 dividends 138, 168, 223, 231 Domesday Book 17 domicile, taxation and 197, 222 double-entry accounting 88 drugs trade 56 economics textbooks 48+n, 85–6 economy 58, 167–8, 210 effects of unemployment on 83 intervention following 2008 crash 79–80, 83 relationship to money and tax 88 reorganizing, taxation and 57–62, 66 sectors 87–8 sustainability 57 see also government(s) and growth education 102, 106–8, 158 efficiency 54–5, 130–1, 160–1 employment full 57, 158, 171, 215 issues concerning 83, 89, 167, 168, 172, 173 energy sources 63, 237 enterprise 136–7, 173, 225, 234 environmental issues 31, 63, 143, 176, 190–1, 233, 237 equity/equality 129–31, 137–45, 211, 212, 215 see also flat taxes and inequality equivalence 144 European Commission 151–2 European Parliament 65, 151 European Union 124, 126, 223, 237 expenses 196 exports 88 externalities 63–4, 190–1 feedback on effectiveness of tax decisions 108, 112 financial services 143, 174 see also banks and banking Financial Times 109 financial transactions information on 197, 201 volume destabilizing economy 188 financial transactions tax, proposed 187–9, 236 fiscal policy 58–60, 82–3, 104–5 flat taxes 68–80, 161 Franklin, Benjamin 13, 14 French revolution 23–4 fuel duties 30, 74 future generations, tax and 143, 176 Galbraith, J.

Tribe: On Homecoming and Belonging by Sebastian Junger

banking crisis, Credit Default Swap, Ferguson, Missouri, financial independence, income inequality, Paul Samuelson, RAND corporation, traumatic brain injury, Yom Kippur War

Business Insider, January 23, 2013. http://www.businessinsider.com/why-wall-street-execs-werent-prosecuted-2013-1. Grinnell, G. B. “The Cheyenne Medicine Lodge.” American Anthropologist, New Series, 16, no. 2 (1914): 245–56. Holland, Joshua. “Hundreds of Wall Street Execs Went to Prison During the Last Fraud-Fueled Bank Crisis.” Moyers & Company, September 17, 2013. http://billmoyers.com/2013/09/17/hundreds-of-wall-street-execs-went-to-prison-during-the-last-fraud-fueled-bank-crisis/. “Home Foreclosure Rates Are Comparable to the Great Depression.” Washington’s Blog, May 7, 2013. http://www.washingtonsblog.com/2013/05/have-more-people-lost-their-homes-than-during-the-great-depression.html. Kiel, Paul, and Dan Nguyen.

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

“But the next minute a democratic nation was really quite horrified at the idea that one man had this much power.” Republican senator Nelson Aldrich of Rhode Island, who was among Wall Street’s best friends in Washington, put the matter more practically: “Something has got to be done. We may not always have Pierpont Morgan with us to meet a banking crisis.” The idea of a centralized monetary authority was hardly novel. The Bank of England had been around since 1694, and as early as the mid-nineteenth century had developed the practice of printing cash and lending it to smaller banks at times of crisis. This “lender of last resort” role for central banks was codified by British journalist and economist Walter Bagehot in his 1873 book, Lombard Street.

…

He and the Richmond Fed’s Jeff Lacker had gone to the same New Jersey high school, although they didn’t know each other then, and were graduate students in economics at the same time at the University of Wisconsin. Rosengren began his Fed career in the Boston Fed’s research department, focusing for a time on the credit crunch and banking woes of New England in the 1990s as well as Japan’s banking crisis. In 2000, he moved into the nitty-gritty of bank supervision and regulation, an unusual move for a Ph.D. economist but one that gave him highly relevant expertise during the Great Panic and a clear view that some fellow bank presidents lacked. Where others saw signs of hope, Rosengren saw “a deteriorating housing sector, slowing consumer and business spending, high energy prices, and ill-functioning financial markets.”

…

Based on his years of studying previous financial collapses and telephone conversations with his Swedish and Japanese counterparts who had coped with recent banking crises, Bernanke had suspected for months that he and Paulson would eventually end up asking Congress to spend substantial sums of taxpayer money to rescue the banks. In every major banking crisis he had studied, the government had had to put capital into the banks, take bad loans off the banks’ books, and guarantee the banks’ debts. So far, Bernanke had deferred to Paulson on the timing of going to Congress, while Paulson had been reluctant to propose anything that Congress might, in an election year, reject.

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

Our strength lies in an ability to improvise. Yet an open mind to untried ideas is also necessary. —John Maynard Keynes, How to Pay for the War (1940) The crash of 2008 and the recession that followed it are often talked of as a second Great Depression. But there’s no comparing our most recent banking crisis with the misery that incinerated lives in the 1930s. Life for many today is difficult, certainly. But the Great Depression was a disaster. In America at the height of the economic slump between 1932 and 1933, somewhere between one in three and one in four men of working age was out of work. One million families lost their farms and two million people became homeless.

…

Wilson, “Great Scientist ≠ Good at Math,” Wall Street Journal, April 5, 2013, accessed October 4, 2013, http://www.wsj.com/articles/SB10001424127887323611604578398943650327184. Yuri Zhukov, “Snipes on a Bog,” Pravda, October 19, 1959. INDEX A adult literacy, 1 air pollution, 1, 2 Åström, Sverker, 1 B Baily, Martin, 1 banking crisis, 1, 2, 3 See also financial crisis Ben Ali, Zine El Abidine, 1 Bevins, Vincent, 1 Bhavan, Anand, 1 Bhutan, 1, 2 biodiversity, 1, 2, 3 Blair, Tony, 1, 2, 3, 4 Bono, 1 Bouazizi, Mohamed, 1, 2 Brown, Andrew, 1 Brown, Gordon, 1, 2, 3, 4 Buddhism, 1 Building a Knowledge Society, 1 Burki, Shahid Javed, 1 Bush, George H.

…

., 1, 2, 3, 4 emissions, 1, 2, 3, 4 See also environmental concerns Environment Programme, 1, 2 environmental concerns climate change, 1, 2, 3, 4, 5, 6, 7 conservation, 1 emissions, 1, 2, 3, 4 global warming, 1, 2, 3 greenhouse gases, 1, 2 insecticides, 1 pollution, 1, 2 protecting environment, 1, 2, 3, 4, 5 resource scarcity, 1, 2, 3 species extinction, 1, 2, 3, 4, 5 environmental indicators, 1, 2, 3 environmental protection, 1, 2, 3, 4, 5 environmental services, 1, 2, 3 European Organization for Nuclear Research, 1 European Union (EU), 1, 2 F Federal Bureau of Investigation (FBI), 1, 2 Federal Reserve Board, 1, 2 financial crisis banking crisis, 1, 2, 3 debt crisis, 1 GDP and, 1 Great Depression and, 1, 2 predicting, 1 stock market crash, 1 Fishing in Utopia, 1 Fitoussi, Jean-Paul, 1 Ford Foundation, 1, 2 Frascati Manual, 1 Freeman, Christopher, 1, 2, 3 funding schemes, 1 G Gandhi, Indira, 1, 2 Gaussian copula, 1 Gautama, Siddharta, 1 GDP (Gross Domestic Product) alternatives to, 1, 2, 3, 4, 5, 6, 7, 8, 9, 10 calculating, 1 changing, 1 description of, 1, 2, 3 as economic indicator, 1, 2, 3 financial crisis and, 1 flaws in, 1 formula for, 1 healthy GDP, 1 maximizing, 1, 2 monitoring, 1, 2 rankings of, 1, 2, 3 rising GDP, 1, 2, 3, 4 size of, 1, 2 symbols for, 1, 2 valuing important issues, 1, 2, 3, 4, 5, 6 Geldof, Bob, 1 General Theory of Employment, Interest and Money, 1, 2 global organization, 1 global problems, 1 global “race,” 1 global warming, 1, 2, 3 See also environmental concerns GNH (Gross National Happiness), 1, 2, 3, 4, 5, 6 GNP (Gross National Product), 1, 2, 3 government spending, 1, 2, 3, 4 Great Depression, 1, 2, 3, 4, 5, 6, 7 Green GDP, 1, 2 Green, Stephen, 1 greenhouse gases, 1, 2 See also emissions Greenspan, Alan, 1, 2 Group of Eight (G8), 1 “growth philosophy,” 1 H Halberstam, David, 1, 2, 3 Haq, Khadija, 1 Haq, Mahbub ul, 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13 Harrod, Roy, 1 Harvard University, 1, 2, 3, 4, 5, 6, 7, 8 Harvard Development Advisory Service, 1, 2 health care, 1, 2, 3 Heath, Edward, 1 Hitler, Adolf, 1, 2 Hoffmann, Walther, 1 Holdgate, Martin, 1 Hollande, François, 1 household debt, 1 household incomes, 1, 2, 3, 4 household spending, 1, 2, 3 How to Pay for the War, 1, 2, 3 Human Development Index (HDI) as alternative to GDP, 1, 2, 3, 4, 5, 6 calculating, 1 components of, 1 creation of, 1, 2, 3, 4, 5, 6, 7 measurement of, 1, 2 mistakes with, 1, 2 report on, 1, 2 scoring process, 1 success of, 1, 2 Human Development Report, 1, 2 Human Environment: The British View, 1 Hussain, Zahid, 1, 2, 3 I incomes household incomes, 1, 2, 3, 4 measure of, 1 national income, 1, 2, 3, 4, 5, 6, 7 per capita income, 1, 2 indicator dashboards, 1, 2, 3, 4, 5 Indonesia, 1, 2, 3, 4 industrial pollution, 1 industrial spending, 1 industrialization, 1, 2, 3, 4, 5 inflation, 1, 2 insecticides, 1 International Monetary Fund, 1, 2, 3 investment business investment, 1, 2 consumption and, 1, 2 defining, 1, 2 funding and, 1 increase in, 1 requirement for, 1 spending and, 1, 2, 3 J Jindal, Bobby, 1 job creation, 1, 2, 3, 4, 5 job satisfaction, 1, 2, 3 Jolly, Richard, 1, 2, 3, 4, 5, 6 K Kahn, Richard, 1 Karachi, 1 Karma Ura, Dasho, 1, 2, 3 Kennedy, John F., 1, 2, 3, 4, 5, 6 Keynes, John Maynard, 1, 2, 3, 4, 5, 6, 7, 8, 9 Keynesian economists, 1 Keynesian proposal, 1 Keynesian stimulus, 1 Khan, Ayub, 1 Khruschev, Nikita, 1 King, Alexander, 1, 2 Krugman, Paul, 1 Kuznets, Simon, 1, 2, 3, 4, 5, 6, 7, 8 L La Follette, Robert, Jr., 1, 2 Lancet, 1 Lash, Jonathan, 1 laws of economics, 1, 2 Lawson, Nigel, 1 life expectancy, 1, 2, 3, 4 life, quality of, 1, 2, 3, 4, 5, 6, 7 life satisfaction, 1, 2, 3 Limits to Growth, The, 1, 2, 3, 4, 5, 6, 7, 8 literacy, 1 “living voice,” 1 M Maddox, John, 1 Marshall Plan, 1, 2, 3 Marx, Karl, 1, 2, 3 Massachusetts Institute of Technology (MIT), 1, 2, 3, 4, 5, 6, 7, 8 mathematical notation, 1 Mazzucato, Mariana, 1 McCarthy, Joseph, 1 McNamara, Robert, 1, 2 Meacher, Michael, 1 Meade, James, 1 military spending, 1, 2, 3 Mill, John Stuart, 1 Millikan, Max, 1, 2 Milne, David, 1 Mismeasuring Our Lives, 1 Models of Doom, 1, 2 Museveni, Yoweri, 1 N Napoli, Lisa, 1, 2 national debt, 1 national income, 1, 2, 3, 4, 5, 6, 7 National Income, 1929–32, 1 National Plan, 1, 2 “natural capital,” 1, 2, 3 Nature, 1, 2, 3 Nehru, Jawaharlal, 1 New Deal, 1, 2 Newton, Isaac, 1, 2 Nixon, Richard, 1, 2 Nobel Prize, 1, 2, 3, 4, 5, 6, 7, 8, 9, 10 nuclear weapons, 1, 2, 3, 4, 5 O Obama, Barack, 1 O’Donnell, Gus, 1 Office of Price Administration and Civilian Supply (OPACS), 1 Only One Earth: The Care and Maintenance of a Small Planet, 1, 2 Organization for Economic Cooperation and Development (OECD), 1, 2, 3, 4, 5, 6, 7 Organization for European Economic Cooperation (OEEC), 1 Osborne, George, 1 P Palme, Olof, 1, 2, 3 Papanek, Gustav, 1, 2, 3, 4 Papanek, Hanna, 1 Pearce, David, 1, 2 Peccei, Aurelio, 1, 2, 3, 4, 5, 6, 7 Peccei, Roberto, 1 per capita income, 1, 2.

Beyond Outrage: Expanded Edition: What Has Gone Wrong With Our Economy and Our Democracy, and How to Fix It by Robert B. Reich

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, affirmative action, Alan Greenspan, banking crisis, benefit corporation, business cycle, carried interest, collateralized debt obligation, collective bargaining, Cornelius Vanderbilt, Credit Default Swap, credit default swaps / collateralized debt obligations, desegregation, electricity market, Ford Model T, full employment, Glass-Steagall Act, Home mortgage interest deduction, job automation, low interest rates, Mahatma Gandhi, minimum wage unemployment, money market fund, Nelson Mandela, new economy, Occupy movement, offshore financial centre, plutocrats, Ponzi scheme, race to the bottom, Ronald Reagan, Savings and loan crisis, single-payer health, special drawing rights, The Wealth of Nations by Adam Smith, Tim Cook: Apple, too big to fail, trickle-down economics, women in the workforce, working poor, zero-sum game

In May 2012, Jamie Dimon, chairman and CEO of JPMorgan Chase, the nation’s largest bank by assets, announced the bank had lost $2 billion to $3 billion in trades because of excessively risky bets that were “poorly executed” and “poorly monitored,” the result of “many errors,” “sloppiness,” and “bad judgment.” But not to worry, said Dimon. “We will admit it, we will fix it and move on.” Ever since the start of the banking crisis in 2008, Dimon had been arguing that more government regulation of Wall Street was unnecessary. In 2011 he vehemently and loudly opposed the so-called Volcker Rule, itself a watered-down version of the old Glass-Steagall Act—the Depression-era law that had separated investment banking (betting in the financial casino) from commercial banking (taking in deposits and lending them out).

…

By the time of Dimon’s announcement of JPMorgan’s trading losses, the rule had morphed into almost three hundred pages of regulatory mumbo jumbo and still hadn’t been finalized. In light of all this, Dimon’s promise in May 2012, after revealing billions of dollars of losses from risky trades, that JPMorgan would “fix it and move on” was not reassuring. Here we were—less than four years after a banking crisis had forced American taxpayers to bail out the Street, caused home values to plunge by more than 30 percent and pushed millions of homeowners underwater, threatened or diminished the savings of millions more, and sent the entire American economy hurtling into the worst downturn since the Great Depression—and JPMorgan recapitulated the whole debacle with the same kinds of errors, sloppiness, and bad judgment, and the same excessively risky, poorly executed, and poorly monitored trades, that had caused the crisis in the first place.

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

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

In fact, the elements of that day are not likely to be present in the sample of any of the previous 3,652 days.28 So how could the computer possibly calculate the likelihood of their recurring tomorrow, or next week? Similarly, in the financial world, if you feed a statistical model data that have come from a period where there has been no banking crisis, the model will predict that it is very unlikely you will have a banking crisis. When statisticians worked out that a financial crisis of the sort we witnessed in 2008 would occur once in billions of years, their judgment was based on years of data when there had not been such a crisis.29 It compounds the problem that people tend to simplify the outcome of risk models.

…

Are you comfortable that all these giant buildings are the result of the success of the industry, and not perhaps the result of someone taking some of your money for their own advantage? Are you sure that this very complicated industry is the best way to create those services you say are so important? What about that banking crisis you mentioned, where it looked as though the whole system would collapse? How did that come about?” He’s not done. Walking past one of the many churches in the City of London, our friend reminds us that in his day, churches were deeply respected. But they brought themselves into great disrepute by selling “indulgences,” which allowed those who were wealthy enough to be forgiven their sins.8 The indulgences, he reminds us, paid for a lot of beautiful religious architecture and a comfortable life for those members of the clergy willing to abuse the system.

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

Eschewing risk, lenders were pulling funds from private borrowers and parking them with the government for safety. After a day’s reflection, traders were unsettled by the loss of Fannie’s and Freddie’s preferred stock, and by the larger truth that removing the twins from danger had not resolved the banking crisis. In a telltale reminder that the country’s subprime problems were far from over, WaMu’s board sacked its CEO, Kerry Killinger, the banker who once had presumed that mortgages were just like retail. These assorted blows, striking on a single day as if from the fury of an angry god, weighed deeply on other troubled institutions, especially AIG.

…

Fully 20 percent of subprime borrowers were seriously delinquent—an extraordinary credit market bust. Even 5 percent of conventional mortgagors were delinquent, evidence that the disease of overleverage had penetrated the middle class.12 Despite these doleful augurs, the administration was still having trouble persuading the public that it had a stake in the banking crisis. The crisis was still widely seen as a Wall Street problem, and mail on the TARP was running solidly against. Senator Jon Kyl, Republican of Arizona, quipped that his mail was split: 50 percent “No” and 50 percent “Hell, no.”13 Trying to rally votes, President Bush gave a prime-time address on the economy—his first in eight years.

…

Those downgraded and defaulted bonds were on the books of banks, and others, and there was no painless way to unload them.11 In a perceptive essay published in Time, the British historian Niall Ferguson calculated that bank losses during the crisis amounted to $100 billion more than the total of new capital raised, implying (since each dollar of capital supported $10 or more on the balance sheet) that banks would have to reduce their assets by at least a trillion dollars.12 This guaranteed further price plunges, further bank losses. The devastation of banks implied an ever-stronger case for using the TARP for a capital injection. A group of professors with whom Bernanke periodically consulted were at the Fed that Friday, and strongly recommended capital investment, noting that it had worked in Sweden during its banking crisis in the 1990s. Bernanke surely mentioned this to Paulson, as the secretary told his staff he wanted them to work on a “capital program.”13 Then, Paulson took his family to an island off the coast of Georgia for a weekend of fishing and a respite from stress. The Monday he returned, stock markets around the world crashed. 18 RELUCTANT SOCIALIST The holders of the cash reserve [the central bank] must be ready not only to keep it for their own liabilities, but to advance it most freely for the liabilities of others.

Keynes Hayek: The Clash That Defined Modern Economics by Nicholas Wapshott

airport security, Alan Greenspan, banking crisis, Bear Stearns, Bretton Woods, British Empire, business cycle, collective bargaining, complexity theory, creative destruction, cuban missile crisis, Francis Fukuyama: the end of history, full employment, Gordon Gekko, greed is good, Gunnar Myrdal, if you build it, they will come, Isaac Newton, Joseph Schumpeter, Kickstarter, liquidationism / Banker’s doctrine / the Treasury view, means of production, military-industrial complex, Mont Pelerin Society, mortgage debt, New Journalism, Nixon triggered the end of the Bretton Woods system, Northern Rock, Paul Samuelson, Philip Mirowski, Phillips curve, price mechanism, public intellectual, pushing on a string, road to serfdom, Robert Bork, Robert Solow, Ronald Reagan, Simon Kuznets, The Chicago School, The Great Moderation, The Wealth of Nations by Adam Smith, Thomas Malthus, trickle-down economics, Tyler Cowen, War on Poverty, We are all Keynesians now, Yom Kippur War

Meyer immediately suggested to Hoover that the reparations be cut in half; three days later Hoover went a step further, declaring a moratorium on all debt payments for a year. Keynes declared the decision “a first step of the greatest possible value.”10 Keynes reported back to his friend O. T. Falk11 in London a parlous state of affairs in America that uncannily presaged the symptoms of the banking crisis that would overtake America half a century later, in September 2008. “[The banks] have purchased great quantities of second-grade bonds which have depreciated in value and their advances to farmers and against real estate are inadequately secured,”12 Falk recorded. In a lecture to the New School in New York Keynes rejected the free-market prescriptions “of the so-called ‘economists’ attached to leading New York banks,”13 and advocated a rise in prices and a loosening of credit to put the economy back on track.

…

The German elections of 1930, which left Adolf Hitler’s extreme Nazi Party victorious, prompted visions of a civil war in Germany, leading to a flight of capital from the country and heavy withdrawals of gold and foreign exchange. In early 1931, the German Reichsbank was unable to honor its commitments, setting off a banking crisis that led in turn to an intense round of speculation against the pound sterling, causing the British Treasury to seek an American loan. To meet the terms of the loan, Snowden, the Labour chancellor, proposed a package of severe public-expenditure cuts drawn up by a former official of Prudential Assurance, Sir George May.

…

It was Sraffa’s reputation as an economist with an original cast of mind that led Keynes to commission him to write an article for the “Reconstruction in Europe” series, a piece that was sharply critical of the three largest Italian banks. The piece was so damning of Italian banking practices that it drew the attention of Mussolini himself, who was, coincidentally, in the midst of trying to solve a banking crisis by using state funds to rescue the ailing Banco di Roma. Sraffa’s piece was perfectly timed to cause the maximum mischief, and Keynes was delighted. Mussolini, however, was not. He decried Sraffa’s article as a “slander against Italy,”14 the unpatriotic act of a radical agent paid by foreigners.

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

See standing army Arrow, Kenneth, 193–195, 205–206, 213, 222, 244 Arrow securities, 244 Asia, 274–275, 330 Asquith, Herbert, 23 asset markets, 247–249, 252 assets, of moral identity, 303 asymmetries, of power, 282–283, 285 Austria, 69 Ayr Bank crisis, 89, 91–93, 99–100, 174, 253 Bacon, Francis, 163 The Masculine Birth of Time by, 214 natural philosophy of, 164–165 The New Atlantis by, 164 on science, 166 Bagehot, Walter, 277 Balliol, 23–26 Bank of England, 92 banking system international, 259–260 loans in, 249–250 regulation of, 254 in Scotland, 88–89, 91–92 banks capital and, 108 financial products of, 250 lobbying by, 261 regulation of, 254, 259 rent-extraction by, 260–261 See also Ayr Bank crisis Becker, Gary, 215 behaviour, 169–170, 196, 209, 222 human, 29, 197 in markets, 236–237 The Theory of Moral Sentiments on, 201 The Wealth of Nations on, 221 benevolence, 56–57 bent markets, 283–284 Bentham, Jeremy, 21, 198, 201 Berkeley, Bishop, 25 big data, 281–282 bills of exchange, 92–93 birth, of Smith, A., 4 Black, Joseph, 126–127, 136–137, 152, 169 Blackstone, William, 100 Blair, Hugh, 124 Boston Tea Party, 103 Boswell, James, 6, 51–52, 127–128, 132, 154–155 Bradstreet, Dudley, 35 Bretton Woods Agreement, 252 Breyer, Stephen, 258 Britain.

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But it meant that the easy-lending Ayr Bank had quickly been swamped by demand, including from speculators, and it over-expanded. There was a sharp recession in Scotland in 1771, causing many of its loans to turn sour; and lacking access to liquidity and capital, the whole structure came crashing down in the classic pattern of banking failures ever since. This then resulted in a secondary banking crisis which only four private banks in Edinburgh survived, and which inflicted enormous losses on the Ayr Bank’s original partners, who, unlike the investors in today’s incorporated limited-liability banks, were exposed to the full extent of their wealth. Their creditors were ultimately paid in full, but at the horrendous total cost to the partners of £663,397.

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As the economy grew, so it further benefited from a happy combination of natural and human factors—copious coal reserves, the proximity of major ports, a land frontier with England, expanding export trade, a vibrant (sometimes too vibrant) banking system, low labour costs and a dynamic spirit of entrepreneurship among them. Such growth required capital, and Scotland’s shortage of capital meant that the country was ill equipped to ride out periodic recessions resulting from over-expansion, shifts in demand or bad harvests, all of which played a role in the Ayr Bank crisis of 1772. It seems very likely that Smith worked to assist his patron Buccleuch in dealing with the consequences of that crisis; but even if he did not he had a ringside seat in Dalkeith from which to watch the ramp-up in the bank’s loans, its rapid collapse and the aftermath. Part of Smith’s genius is to take his personal experience and to draw out both telling anecdotes and general lessons from it in his writings.

The Age of Stagnation: Why Perpetual Growth Is Unattainable and the Global Economy Is in Peril by Satyajit Das

"there is no alternative" (TINA), "World Economic Forum" Davos, 9 dash line, accounting loophole / creative accounting, additive manufacturing, Airbnb, Alan Greenspan, Albert Einstein, Alfred Russel Wallace, Anthropocene, Anton Chekhov, Asian financial crisis, banking crisis, Bear Stearns, Berlin Wall, bitcoin, bond market vigilante , Bretton Woods, BRICs, British Empire, business cycle, business process, business process outsourcing, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carbon tax, Carmen Reinhart, Clayton Christensen, cloud computing, collaborative economy, colonial exploitation, computer age, creative destruction, cryptocurrency, currency manipulation / currency intervention, David Ricardo: comparative advantage, declining real wages, Deng Xiaoping, deskilling, digital divide, disintermediation, disruptive innovation, Downton Abbey, Emanuel Derman, energy security, energy transition, eurozone crisis, financial engineering, financial innovation, financial repression, forward guidance, Francis Fukuyama: the end of history, full employment, geopolitical risk, gig economy, Gini coefficient, global reserve currency, global supply chain, Goldman Sachs: Vampire Squid, Great Leap Forward, Greenspan put, happiness index / gross national happiness, high-speed rail, Honoré de Balzac, hydraulic fracturing, Hyman Minsky, illegal immigration, income inequality, income per capita, indoor plumbing, informal economy, Innovator's Dilemma, intangible asset, Intergovernmental Panel on Climate Change (IPCC), it is difficult to get a man to understand something, when his salary depends on his not understanding it, It's morning again in America, Jane Jacobs, John Maynard Keynes: technological unemployment, junk bonds, Kenneth Rogoff, Kevin Roose, knowledge economy, knowledge worker, Les Trente Glorieuses, light touch regulation, liquidity trap, Long Term Capital Management, low interest rates, low skilled workers, Lyft, Mahatma Gandhi, margin call, market design, Marshall McLuhan, Martin Wolf, middle-income trap, Mikhail Gorbachev, military-industrial complex, Minsky moment, mortgage debt, mortgage tax deduction, new economy, New Urbanism, offshore financial centre, oil shale / tar sands, oil shock, old age dependency ratio, open economy, PalmPilot, passive income, peak oil, peer-to-peer lending, pension reform, planned obsolescence, plutocrats, Ponzi scheme, Potemkin village, precariat, price stability, profit maximization, pushing on a string, quantitative easing, race to the bottom, Ralph Nader, Rana Plaza, rent control, rent-seeking, reserve currency, ride hailing / ride sharing, rising living standards, risk/return, Robert Gordon, Robert Solow, Ronald Reagan, Russell Brand, Satyajit Das, savings glut, secular stagnation, seigniorage, sharing economy, Silicon Valley, Simon Kuznets, Slavoj Žižek, South China Sea, sovereign wealth fund, Stephen Fry, systems thinking, TaskRabbit, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the market place, the payments system, The Spirit Level, Thorstein Veblen, Tim Cook: Apple, too big to fail, total factor productivity, trade route, transaction costs, uber lyft, unpaid internship, Unsafe at Any Speed, Upton Sinclair, Washington Consensus, We are the 99%, WikiLeaks, Y2K, Yom Kippur War, zero-coupon bond, zero-sum game

Higher commodity prices in combination with large flows of capital create inflationary pressures, forcing emerging countries to increase interest rates, thus slowing economic growth. These developments threaten to reverse progress in reducing poverty. Regulations are increasingly a weapon in the battle between nations. After the 2008 banking crisis, new rules for financial institutions were developed to ensure more rigorous regulatory oversight. They were intended to be adopted globally, to ensure international consistency. Emerging countries argue that stringent regulations intended for complex multinational financial institutions in developed countries are inappropriate for their simpler financial systems, and that adoption of them would impede the ability of local banks to provide the credit necessary to support the local economy.

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Large increases in wages would reduce export competitiveness. Large-scale social programs would strain public finances, necessitating higher tax rates. Greater consumption would reduce the high saving levels, which provide state-owned banks with deposits that can be used, as required, by the central government to drive economic growth and avoid a banking crisis. The low interest rate paid on deposits, set well below inflation, allows banks to earn substantial profits from the large margin between the rate at which they borrow and lend. The resulting high profits are then available to absorb losses on poor quality loans that cannot be serviced or paid back.

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There was no willingness to deal with high debt levels that were incapable of being repaid, the lack of competitiveness of some Eurozone members, or the inflexible single currency and uniform interest rates across disparate economies. Creditors like Germany were unwilling to write off debt which would trigger a banking crisis. No one was willing to countenance a restructuring of the Eurozone or the euro, which had been designed without an exit mechanism. Lorenzo Bini Smaghi, an Italian European Central Bank executive board member, confessed that the euro project assumed there would be no crises. Slow, tortuous processes yielded inadequate policy responses.

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

During the 1960s and 1970s, so-called ‘secondary banks’, including US banks, began to enter the London banking sector and lend heavily to commercial property companies, encouraged by rapidly rising land prices in the capital. Excessive commercial property lending was the most significant contributor to the ‘secondary banking’ crisis of 1973–74 (Reid, 1982). In response to competition from these secondary banks and other financial institutions outside the Bank of England’s regulatory remit, the 1971 Competition, Credit and Control (CCC) Act was designed to level the playing field, bringing a wide range of new financial institutions under the Bank’s remit (although not building societies) but also allowing the large UK clearing banks to borrow from the fast growing wholesale markets sector (see Box 5.3).8 Box 5.3 How banks and building societies ‘fund’ mortgages Banks must ensure that their assets (the loans they make) match the sum of their liabilities (money they owe to customers) and their equity (money owed to the bank’s owners).

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Chicago: University of Chicago Press. Mian, Atif, Amir Sufi, and Emil Verner. 2015. ‘Household Debt and Business Cycles Worldwide’. National Bureau of Economic Research. Mill, John Stuart. 1884. Principles of Political Economy. D. Appleton. Milne, Alistair, and Justine A. Wood. 2014. ‘An Old Fashioned Banking Crisis: Credit Growth and Loan Losses in the UK 1997–2012’. In The Causes and Consequences of the Long UK Expansion, ed. J. S. Chadha, A. Chrystal, J. Pearlman, P. Smith, and S. Wright. Cambridge: Cambridge University Press. Minsky, Hyman. 1986. Stabilizing and Unstable Economy. New Haven, CT: Yale University Press.

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Compass Thinkpiece no. 4. http://www.compassonline.org.uk/publications/a-citizens-income-a-recipe-for-change. Reed, Howard, and Jacob Mohun Himmelweit. 2012. Where Have All the Wages Gone? Lost Pay and Profits Outside Financial Services, Touchstone Extras. London: Trades Union Congress. Reid, Margaret. 1982. Secondary Banking Crisis in the UK. Macmillan. Ricardo, David. 1817. Principles of Political Economy and Taxation. Batoche Books. Ricardo, David. 1973. The Works and Correspondence of David Ricardo: Volume 11, General Index, ed. Piero Sraffa. Vol. 11. Cambridge: Cambridge University Press. Riley, Don. 2001. Taken for a Ride: Trains, Taxpayers and the Treasury.

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

The response was that the central bank was not formally responsible or accountable, so banking problems would not infect the Bundesbank’s reputation and standing as a monetary authority.20 In my own country, and I would guess the United States, the central bank could not escape censure over a banking crisis by saying that it was only one of a number of de facto supervisors, not the de jure regulator. (As reported above, the Bank of England could not escape responsibility for a banking crisis even when it had no role in supervising banks and markets.) To be clear, the position of this book is that if central banks are to be involved materially in supervision, whether alongside other agencies or not, our democratic values demand that their role should be formalized for all the reasons explored in part II.

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But, as though revisiting their past, the Great Moderation they presided over turned nasty, twisting itself into the Great Financial Crisis and years—not yet behind us—of below-par growth. From Impotence to the Only Game in Town For the central bankers themselves, however, history has not repeated itself. Indeed, the contrast with the aftermath of the banking crisis, monetary disorder, and economic slump of the 1920s and 1930s could hardly be greater. Then, governments quickly turned away from globalization and central bank–centered macroeconomic policies. Nationalism was the order of the day—autarky, propped up by barriers to trade, controls on capital flows, and financial repression.7 When at the end of World War II the international economic order was reconstructed at Bretton Woods, New Hampshire, central banks were largely bystanders.

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While largely about private sector organizations, some of its points carry across to the state. 17 Norman was described as mesmeric by Sir Jasper Hollam, who started his career as a clerk in Norman’s time and retired in the late 1970s as deputy governor (source: transcripts of interviews for Forrest Capie’s history of the Bank of England). Hollam, who was central to the Bank’s efforts to contain the UK’s Secondary Banking Crisis in the mid-1970s, passed away while I was beginning this project. 18 Bicchieri, Norms. 19 Beetham, Legitimation of Power, p. 11. 20 In the second edition (pp. 266–268), Beetham argues for avoiding the term consent for the third condition, preferring something like the formula I have used in the main text, on the grounds that “consent” would cover the second criterion’s test of beliefs-cum-values whereas, for a society as a whole, beliefs can be inferred but not directly observed.

Rethinking Capitalism: Economics and Policy for Sustainable and Inclusive Growth by Michael Jacobs, Mariana Mazzucato

Alan Greenspan, balance sheet recession, banking crisis, basic income, Bear Stearns, Bernie Sanders, Bretton Woods, business climate, business cycle, carbon tax, Carmen Reinhart, central bank independence, circular economy, collaborative economy, complexity theory, conceptual framework, corporate governance, corporate social responsibility, creative destruction, credit crunch, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, decarbonisation, degrowth, deindustrialization, dematerialisation, Detroit bankruptcy, double entry bookkeeping, Elon Musk, endogenous growth, energy security, eurozone crisis, factory automation, facts on the ground, fiat currency, Financial Instability Hypothesis, financial intermediation, Ford Model T, forward guidance, full employment, G4S, general purpose technology, Gini coefficient, Growth in a Time of Debt, Hyman Minsky, income inequality, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), Internet of things, investor state dispute settlement, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, knowledge economy, labour market flexibility, low interest rates, low skilled workers, Martin Wolf, mass incarceration, military-industrial complex, Modern Monetary Theory, Money creation, Mont Pelerin Society, neoliberal agenda, Network effects, new economy, non-tariff barriers, ocean acidification, paradox of thrift, Paul Samuelson, planned obsolescence, Post-Keynesian economics, price stability, private sector deleveraging, quantitative easing, QWERTY keyboard, railway mania, rent-seeking, road to serfdom, savings glut, Second Machine Age, secular stagnation, shareholder value, sharing economy, Silicon Valley, Solyndra, Steve Jobs, stock buybacks, systems thinking, the built environment, The Great Moderation, The Spirit Level, Thorstein Veblen, too big to fail, total factor productivity, Tragedy of the Commons, transaction costs, trickle-down economics, universal basic income, vertical integration, very high income