light touch regulation

76 results back to index


pages: 398 words: 105,917

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

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

By the time the world needed to respond to the early-twentieth-century crisis of accounting epitomized by Enron and WorldCom, Britain’s New Labour government was in thrall to the bean counters-turned-consultants now strolling the corridors of power reforming public services. When the accountants lobbied, the government listened. A 1997 New Labour manifesto commitment to more independent regulation of the accountancy profession was soon dropped. ‘Light touch’ regulation became a selling point for ‘UK plc’. Set up your companies here or list on our stock exchanges, was the message, and we won’t probe your accounts or those who audit them too closely. Britain’s public accountancy regulator, the Financial Reporting Council, was set up in 1990 in the wake of the 1980s scandals like Barlow Clowes, but had soon become the vehicle for this indulgence. While the accountancy profession largely self-regulates through its chartered institutes and associations, the FRC is supposed to examine disciplinary cases of serious public interest.

., 75 Japan, 2, 82, 230–31, 234–5, 240–41 Jennings, Andrew, 220, 224 Jerome, Saint, 35 Jersey, 89, 94–5, 158 job costing, 43 Johnson Matthey Bank, 91, 128 Johnson, Lyndon Baines, 63 joint stock companies, 41 Joint Stock Companies Act 1844: 47 1856: 50 Jones, Lewis Davies, 54, 55, 56 Jowell, Tessa, 196 junk bonds, 85 Kanebo, 240 Kapital, Das (Marx), 3 Kattner, Markus, 225 Keating, Charles, 85–6, 91 Kellaway, Lucy, 275 Kershaw, Sue, 199 Kgosana, Moses, 250 Khodorkovsky, Mikhail, 237 King, Mervyn, 273 Kirby, Paul, 208 Klynveld Kraayenhof, 235 Klynveld, Piet, ix KMG, 235 Knievel, Robert Craig ‘Evel’, 182 Koch Industries, 171 Kohl, Marius, 168, 174–7 KPMG, ix–x, 2, 10, 11, 48, 97, 116–19, 141–2, 149–50, 256–9, 264–7, 276 and Barnier proposals, 255 and Bradford & Bingley, 141–2, 149 and Brexit, 203, 204 and British Aerospace/BAE Systems, 213 Canary Wharf base, 256 Chelsea Flower Show, 200 in China, 244, 245, 251–2 and Civil Service Live conference, 201 Claridges conference (2007), 122 and Co-operative Bank, 142, 149, 150 and Comroad, 240 and collateralized debt obligations (CDOs), 121 and Countrywide Financial Corporation, 48, 118, 257 ‘Cutting Through Complexity’, 11–12 Data & Analytics (D&A), 272 and defence, 188, 189, 200, 202, 216, 217, 265 establishment of (1987), 235 and European Central Bank, 10 and Federal National Mortgage Association (‘Fannie Mae’), 118–19, 257 and FIFA, 220–28 and Financial Crisis Inquiry Commission, 145 and Financial Reporting Council, 144, 209 and General Electric, 5–6 governments, advice to, 186, 187, 188, 189, 191, 192–3, 197–9, 202–6, 249 and GPT, 216, 217 and HBOS, 141, 142–3, 149, 150, 257 and Hinkley Point, 204–6 and Hollinger, 154–5 and Hong Kong protests (2014), 251–2 and House of Lords committee (2010), 146 and HS2, 197–9 and HSBC, 229–30 and Imperial Tobacco, 202, 266–7 in India, 249 integrated reporting, 18 key performance indicators, 12 and Lockheed Martin, 202, 265 and Miller Energy, 261 and Ministry of Defence, 188, 189, 202, 216, 217, 265 and National Health Service (NHS), 192–3, 202, 266 and New Century Financial Corporation, 48, 116–18, 257 No. 20, Grosvenor Street, Mayfair, ix–x, x, 277–8 ‘One Firm’ philosophy, 275 and ‘patent box’ tax breaks, 180 Performance Club 1999 trips, 160 and Petrofac, 218 and private finance initiative (PFI), 186, 187, 188, 189, 191, 249 and Privy Purse, 68 revolving door, 206, 207, 208 and Saudi British Joint Business Council, 218 Scott London Rolex scandal (2013), 15 and securitization, 121, 122 and Siemens, 240 in South Africa, 249–50 and subprime mortgages, 10, 48, 116–19 and sustainable development, 200 and tax avoidance, 154–5, 157, 158, 159–62, 180–81, 182, 186 thought leadership, 12 and thrifts, 87 and Tier One, 257 and Wachovia, 257 and Xerox, 109–10 Kreuger, Ivar, 57 Kubena, Mike, 237 Labour Party, 66, 94, 114, 178, 179, 184–92, 194, 201, 209, 230 Lake Michigan, 73 Land, Nick, 144, 182 Lang, Ian, 95 Last Supper, The (Leonardo da Vinci), 33 Lateran Council, Third (1179), 24 Law Commission, 93 Lawson, Nigel, 146 Lay, Kenneth, 99–100, 104, 107, 108 Leary, Simon, 191 Lehman Brothers, 12, 13, 92, 119, 131–3, 138, 144, 145, 148–9 Leigh, Edward, 189 Lend-Lease programme, 60 Leonardo da Vinci, 33 Levin, Carl, 159, 161 Levitt, Arthur, 96–8, 104 Lewis, Leigh, 207 Lewis, Michael, 112, 118 Liber Abaci (Fibonacci), 21–2 Liberal party, 50, 52 Liechtenstein, 220 limited liability, 50, 52, 91–5, 114 Lincoln Savings and Loan, 85–7 Linklaters, 140 Little, Royal, 61 Liverpool, Merseyside, 49 LJM, 104–5 Lloyds Bank, 140 Lockheed Martin, 202, 212, 265 London, England Big Bang (1986), 156 Canary Wharf, 256 Chelsea Flower Show, 200 Claridges, 122 Gordon Riots (1780), 38 Imperial College, 197 ‘light touch’ regulation, 114, 131, 209 Medici Bank, 26, 30 Olympic Games (2012), 196 Price Waterhouse, 54 Royal London Hospital, 190 School of Economics, 197 St Bartholomew’s Hospital, London, 190 Tate Modern, 16 Long Term Capital Management, 113 Louis XI, king of France, 31 low-balling, 79, 91 Lowe, Robert, 50 Luce, Edward, 17 Lucerne, Switzerland, 220 Luthiger, Fredy, 222, 223, 227 Luxembourg, 165–77, 179, 180, 181, 182, 245, 267–71, 278 LuxLeaks, 169–77, 179, 181, 245, 268, 269, 278 Lybrand, Ross Bros & Montgomery, 87 Lybrand, William, 56 Lynch, Loretta, 219, 223 Lyons, 31 MacGregor, John, 128 Mair, John, 42, 53 Management Consultancies Association, 190 Mandelson, Peter, 95, 207 Mapping the Market, 193 mark-to-market, 99–102, 113, 123, 124, 129–31 mark-to-model, 124–5, 126, 127, 131 mark-to-myth, 124, 131 Marlborough, Duke of, see Churchill, John Martin, William, 122–3 Marwick, James, ix, 48–9, 56, 62, 119, 158, 217, 233, 277 Marx, Karl, 3 Masters Tournament, 104 Masters, Adrian, 191 matches, 57 Mauritius, 158 Maxwell, Robert, 66, 87–8, 91 May, George, 73, 78, 82, 277 May, Theresa, 203 McConnell, Jack, 207 McCreevy, Charles, 164 McDonald’s, 170 McFall, John, 207 McKenna, Francine, 145, 274 McKinsey, 17, 74–7, 79, 81, 99, 108, 183, 191, 226, 263 McKinsey, James, 74–7 McLean, Bethany, 101 Measelle, Richard, 103 Medici family, 16, 26–32, 36 Cosimo, 26, 27, 28, 29, 31 Giovanni, 26 Lorenzo, 28, 29, 30 Medvedev, Dmitry, 17 Melbourne, Victoria, 48 mergers and acquisitions, 11, 54, 59–69, 71, 87 Merrill Lynch, 121 Mesopotamia, 1 Messezentrum conference centre, Zurich, 228 Metcalf, Lee, 80 Metz, France, 172, 173, 176 Mexico, 229 Michael, Bill, 149–50 Microsoft, 271 Milburn, Alan, 184, 191, 194, 207 Mill, John Stuart, 50 Miller Energy, 261 Ministry of Defence, UK, 188–90, 202, 212, 215–19, 265 Missal, Michael, 115, 116–17 Missouri, United States, 74 Mitchell, Andrew, 206, 208 Mitchell, Austin, 94, 230 Mitchell, Roger, 48, 56 Model T Ford, 71 Modern Times, 71 Monde, Le, 169 monetarism, 84 money laundering, 229–31 Montagu, Nicholas, 207 Monty Python, 15–16 Moore, Paul, 141 Morgan, Henry, 39 Morgan, John Pierpont, 54–5 Morgan Stanley, 119, 148 Morse, Amyas, 206 mortgage-backed securities (MBS), 120–21 Moselle, France, 171 Mossack Fonseca, 247 Mouget, Didier, 170, 171, 173 Mumbai, Maharashtra, 242 Munger, Charlie, 18, 135, 147 Myners, Paul, 146 Nally, Dennis, 5, 148 Nassau, Bahamas, 222 National Aeronautics and Space Administration (NASA), 76 National Audit Office, 187, 189, 206 National Crime Agency (NCA), 272 National Health Service (NHS), 183–4, 187, 190, 191–5, 266 National Westminster Bank (NatWest), 136 Nazi Germany (1933–45), 4, 234, 251 Neoplatonism, 28 Netherlands ABN Amro, 138 Ballast Nedam, 218–19 Klynveld Kraayenhof, 235 Royal Ahold, 238–9 Spanish (1556–1714), 36 taxation, 163, 164–5 New Century Financial Corporation, 48, 115–18, 257 New Delhi, India, 245, 249 New Labour, 114, 184–92, 194, 209 New York, United States, 57 beer business, 54 Britnell’s ‘Reform Revolution’ speech (2011), 192–3 County Law Association, 153 Deloitte compensation case (2009), 239 FIFA indictment (2015), 219, 223 Harris’ advisory services speech (2014), 264 Issuers’ and Investors’ Summit on CDOs/Credit Derivatives (2006), 121 Levitt’s ‘Numbers Game’ speech (1998), 96, 98 Marwick & Mitchell, 48 Price Waterhouse, 54 Stock Exchange, 55, 115, 234 Wall Street, 54, 69, 96, 101, 120–21 New York Times, 118, 236 New Zealand, 256 Newton, Isaac, 22 Nicholson, Kevin, 178, 182 Nieuwe Instructie (Christoffels), 36 Nike, 163 No. 20, Grosvenor Street, Mayfair, ix–x, x, 277–8 Noncomformism, 42 Norte del Valle Cartel, 229 Northern Rock, 125–9, 142–3, 148 Norway, 72 nuclear power, 204–6 ‘Numbers Game’ speech (1998), 96, 98 O’Donnell, Augustine ‘Gus’, 207 O’Rourke, Feargal, 164, 165 off-balance-sheet financing, 101, 102, 104, 106 Office of Tax Simplification, 179 oil crisis (1973), 84 oil-for-food programme, 225, 240 Olympic Games (2012), 196 Olympus, 241 One Hundred Group, 254 OPIS (Offshore Portfolio Investment Strategy), 159, 162 Oppenheimer & Co., 112–13 Organization for Economic Cooperation and Development (OECD), 170, 181, 214 Osborne, George, 149, 182, 248 Oscars, 16 Overend & Gurney, 51, 126 Oxford University, 181, 184 Oxley, Michael, 114, 122 de Pacioli, Luca Bartolomeo, 32–6, 34, 100, 124 Page, Stephen, 272 Pain, Jon, 208 Palin, Michael, 15–16 Palo Alto, Silicon Valley, 82 Panama Papers scandal (2016), 247 Panorama, 169, 220 Paradise Papers scandal (2017), 7, 247 Parmalat, 239, 243 Parrett, William, 148 partners, 8 Pearson, 169, 270 Pearson, Ian, 207 Peat, Marwick, Mitchell & Co., 48, 60, 63, 64, 79, 82, 233, 235 Peat, Michael, 68 Peat, William Barclay, ix, 48, 49, 68, 233, 277 Penn Central Transport Company, 64, 79 pension funds, 67 Pepsi, 166 Pergamon, 66 Perrin, Edouard, 168, 169, 171–2, 173, 174, 175 Persson, Mats, 208 Perugia University, 32 Pessoa, Fernando, 1 Peston, Robert, 197 Peterborough hospital, Cambridgeshire, 191 Petits secrets des grandes enterprises, Les, 169 Petrofac, 218 Pfizer, 163 Piot, Wim, 173, 181, 182 Pisa, Italy, 21 place value’ system, 21 political donations, 98 Ponzi schemes, 89 ‘pooling-of-interest’ accounting, 61–2, 63, 67, 96 post-balance sheet events, 72 Powell, Ian, 128, 201–2 Poynter, Kieran, 148, 150 premiums, 45 Presbyterianism, 42 Price, Samuel Lowell, 49 Price Waterhouse & Co., 49, 53–6, 57, 65, 67, 72, 73, 78–9, 82 and conflicts of interest, 73, 277 consultancy, 78–9, 81, 82 Coopers & Lybrand, merger with (1998), 49, 95 in Germany, 233 and Great Crash (1929), 57 in India, 233 international co-ordinating company, 234 and limited liability partnerships, 94 Palo Alto technology centre, 82 and private finance initiative (PFI), 185 in Russia, 236 and tax avoidance, 164 and tax code (1954), 153–4 and United States Steel, 55, 62, 233 PricewaterhouseCoopers (PwC), 2, 5, 6, 49, 95, 97 and American International Group, 134–5, 144, 145, 148 and Bank of Tokyo-Mitsubishi, 230–31 and Barclays, 6 Booz & Co. acquisition (2013), 263–4 and Brexit, 203 and British Home Stores (BHS), 260 Building Public Trust Awards, 256 ‘Building Relationships, Creating Value’, 12 and Cattles plc., 142 cyber-security, 272–3 establishment of (1998), 49, 95 and Financial Crisis Inquiry Commission, 145 and Financial Reporting Council, 142, 144, 209, 210 global operations, 235–6 and Goldman Sachs, 134–5, 148 and Google, 271 and GPT, 217, 218 and Heineken, 246 and Hong Kong protests (2014), 251–2 in India, 242 integrated reporting, 18 and Kanebo, 240 and Labour Party, 201 and National Health Service (NHS), 192, 194, 200 and Northern Rock, 126, 127–9, 142–3, 148 and Olympic Games (2012), 196 presentation (2017), 16 and private finance initiative (PFI), 187, 188–91, 196, 249 profits, 5 revolving door, 207, 208 and RSM Tenon, 210, 261 in Russia, 236–8 and Saudi British Joint Business Council, 218 and securitization, 121, 122, 129 and tax avoidance, 157, 165–79, 180, 182, 237, 246, 267–71, 278 thought leadership, 12 total tax contribution survey, 179 and Tyco, 109 in Ukraine, 238 and Vodafone, 165–6 Prince of Wales’s charity, 181 principal/agent problem, 13 Prior, Nick, 190 Privatbank, 238 Private Eye, 169, 180, 215, 255 private finance initiative (PFI), 185–91, 196, 203, 249 Privy Council, 94 Privy Purse, 68 production-line system, 71 productivity growth, 262–3 professional scepticism, 112, 130, 214, 224 professional services, 11, 72, 150, 183, 204–5, 251, 275, 279 Professional Standards Group, 105–7 Project Braveheart, 106 Project Nahanni, 102 Protestant work ethic, 3 Protestantism, 3, 42, 43 Prudential, 157 Public Accounts Committee, 281 Public Company Accounting Oversight Board (PCAOB), 144–5, 242–3, 253, 261, 274 Puerto Rico, 163 Putin, Vladimir, 17, 237 Qatar, 228 Quakers, 42, 49 Railway Regulation Act (1844), 45 railways United Kingdom, 44–7, 49, 115 United States, 51, 52, 53, 70, 73 Rake, Michael, 144, 149, 150, 162, 181, 257 Raptors, 105 Rayonier, 59 Reagan, Ronald, 80, 84, 154, 184 Reckoning, The (Soll), 27 Redpath, Leopold, 46 regulation, UK, 13, 127, 209–10, 213–14, 259 and Brexit, 273 deregulation (1980s), 95 and financial crisis (2007–8), 127–8, 137–45 Financial Conduct Authority, 140, 149, 281 Financial Reporting Council, 138, 142, 144, 149, 182, 209–10, 213–14, 259, 261 Financial Services Authority, 127, 128, 137, 138, 140 ‘light touch’, 114, 131, 209–10 Railway Regulation Act (1844), 45 self-regulation, 88, 90 regulation, US, 91, 260 Bush administration (2001–2009), 114, 145, 253 Celler–Kefauver Act (1950), 59, 61 competition on price, 79–80 deregulation (1980s), 84–5, 95, 112 derivatives, 122 and Enron, 99 and Lincoln Savings and Loan, 85–7 mark to market, 99 numbers-game era (1990s), 110 Public Company Accounting and Oversight Board, 242–3, 253, 260 Roosevelt, Theodore administration (1901–9), 56–7 Sarbanes–Oxley Act (2002), 114, 122 self-regulation, 61 Trump administration (2017–), 273, 274 and Westec collapse (1966), 63 see also Securities and Exchange Commission Renaissance, 3, 16, 22, 24–37 Renjen, Punit, 275 ‘Repo 105’ technique, 131–3, 149 revolving door, 206–8, 272 Ripley, William Zebina, 57 Robson, Steve, 144, 207 Rockefeller, John Davison, 53, 71 Rolex, 15, 215 Rolls-Royce, 213 Roman numerals, 22 Rome, ancient, 24 Rome, Italy, 25, 27 Roosevelt, Franklin, 58 Roosevelt, Theodore, 56 de Roover, Raymond, 27 Rowland, Roland ‘Tiny’, 66 Royal African Company, 37 Royal Ahold, 238–9 Royal Bank of Scotland, 47, 90, 136–40, 142, 157, 241, 259 Royal London Hospital, 190 RSM Tenon, 210, 261 Russian Federation, 17, 236–8 Ryan, Tim, 134, 148 Saltwater Slavery (Smallwood), 37 Samek, Steve, 103 SANGCOM, 214–19 Sansepolcro, 32 Sarbanes, Paul, 114, 122 Sarbanes–Oxley Act (2002), 114, 122 Sassetti, Francesco, 16, 29, 30, 31, 41 Satyam, 242 Saudi Arabia, 212–19, 221 Saudi British Joint Business Council, 218 Saunders, Stuart, 64 Save South Africa, 250 savings-and-loan mutuals, 84–7, 91, 99 Sberbank, 237 Scarlett, John, 207, 272 Schlich, William, 149 Schumpeter, Joseph, 3 scientific management, 71, 76 Scotland, ix, 42, 47–9, 70, 224 Scuola di Rialto, Venice, 32 Second World War (1939–45), 59, 60, 77, 234 Secret Intelligence Service, 207, 272 Securities Act (1933), 58 Securities and Exchange Commission (SEC), 281 and consulting, 80, 104 and Enron, 99, 104, 108 and Hollinger, 154 Levitt’s ‘Numbers Game’ speech (1998), 96, 98, 104 and Lincoln Savings and Loan, 85, 86 and Penn Central Transport Company, 64 and ‘pooling-of-interest’ accounting, 61, 62 and Public Company Accounting Oversight Board (PCAOB), 144 PwC India fined (2011), 242 and Xerox, 109–10 securitization, 101–2, 116, 119–23, 125, 129–31, 133–40, 148, 265 Seidler, Lee, 68–9, 79 self-regulation, 6, 61, 88 Serious Fraud Office, 213, 216, 217, 218, 219 Sexton, Richard, 129, 268, 278 shadow banking system, 115 Shanghai, China, 17 Shaxson, Nicholas, 247 Sheraton, 59 Sherlock, Neil, 208 short selling, 112, 115, 116 Siemens, 240 Sikka, Prem, 94 Silicon Valley, California, 82 Simec International Ltd, 214, 215 Sinaloa Cartel, 229 Sinclair, Upton, 14 Singapore, 163 Sino-Forest, 244 Skilling, Jeff, 99–100, 101, 105, 108 Skinner, Paul, 208 Slater, James, 65 slave trade, 4, 37 Smallwood, Stephanie, 37 Smallwood, Trevor, 158 Smartest Guys in the Room, The (McLean and Elkind), 101 Smith, Adam, 13 Smith, Jacqui, 207 Snell, Charles, 40 Social Justice Commission, 184 Soll, Jacob, 27 Sombart, Werner, 3–4, 22 SOS (Short Option Strategy), 159, 162 South Africa, 213, 223–4, 249–50 South Sea Company, 39–41, 42, 44 Soviet Union (1922–91), 236 Spacek, Leonard, 62, 77–8 Spain, 36, 39, 241 special investment vehicles, 115 Spinwatch, 201 Sproul, David, 256, 258 St Bartholomew’s Hospital, London, 190 St Louis, Missouri, 56 Standard & Poor’s, 149 Standard Chartered Bank, 230, 231 Starbucks, 178 steam engine, 43 Stein, Jeffrey, 161 Stephenson, George, 44 Stevens, Mark, 82–3 Stevenson, James, 1st Baron Stevenson, 141 Stiglitz, Joseph, 114 stock market, 68, 69, 92, 96 ‘Go-Go’ years (1960s), 62, 65 and Great Crash (1929), 57, 58 and J.

, 248 UK Uncut, 166 Ukraine, 238 United Kingdom, 2, 6, 39–41, 42–52, 55–6, 65–9 Bank of England, 38, 91, 126, 140, 273 Banking Act (1879), 51 Barlow Clowes collapse (1988), 89–90, 136, 209 Blair ministries (1997–2007), 114, 157, 179, 184–92, 194, 209, 213 Brexit, 195, 203–4, 273 British Home Stores collapse (2015–16), 260–61 Bubble Act (1720), 44 Cabinet Office, 200, 201 Cameron ministries (2010–16), 149, 182, 192, 194, 195, 203 chartered accountancy, 14, 16, 45, 47–8, 49, 53, 67 City of Glasgow Bank collapse (1878), 51, 147 Companies Acts, 51, 52, 58, 66, 93 credit crisis (1772), 43 Davey committee (1894), 52 Department for Business, 201 Department for Exiting the EU, 204 Department of Health, 188, 191, 192 Financial Conduct Authority, 140, 149, 281 financial crisis (2007–8), see under financial crisis Financial Reporting Council, 138, 142, 144, 149, 182, 209–10, 213–14, 259, 261 Financial Services Authority, 127, 128, 137, 138, 140 First World War (1914–18), 71 GCHQ (Government Communications Headquarters), 272 Gordon Riots (1780), 38 Her Majesty’s Revenue and Customs (HMRC), 179, 182 HBOS bailout (2008), x, 140–41, 142–3, 149, 257 Home Office, 201 HS2, 197–9, 266 Income Tax Act (1842), 46 Industrial Revolution, 18, 42–7 Institute of Chartered Accountants in England and Wales (ICAEW), 49, 52, 93, 210 IAS39 rules, 123, 125, 127, 147 Johnson Matthey collapse (1984), 91, 128 Joint Stock Companies Acts (1844, 1856), 47, 50 ‘light touch’ regulation, 114, 131, 209 limited liability, 92–5 May ministries (2016–), 203 Maxwell publishing empire, 66, 87–8, 91 mergers and acquisitions, 65–9 Ministry of Defence, 188–90, 202, 212, 215–19 National Audit Office, 187, 189, 206 National Crime Agency (NCA), 272 National Health Service (NHS), 183–4, 187, 190, 191–5, 266 Northern Rock collapse (2007), 125–9, 142–3, 148 Overend & Gurney collapse (1866), 51, 126 Paradise Papers scandal (2017), 7 private finance initiative (PFI), 185–91, 196, 203, 249 Public Accounts Committee, 281 railways, 44–7, 49, 115 Railway Regulation Act (1844), 45 regulation, see under regulation Royal Bank of Scotland bailout (2008), 47, 136–40, 142, 241 Saudi Arabia, relations with, 212–19 Secret Intelligence Service, 207, 272 Serious Fraud Office, 213, 216, 217, 218, 219 South Sea Company, 39–41, 42, 44 Tate, 16 taxation, 7, 46, 67, 94, 153, 155–9, 163–6, 177–82, 203, 247–8 Thatcher ministries (1979–90), 84, 184 Treasury, 39, 68, 146, 179, 180, 189, 201, 203 War of the Spanish Succession (1707–13), 38 Wilson ministry, first (1964–70), 66, 68 United Nations, 225, 245 United States, 2, 4, 52–8, 59–65, 66–9 American Institute of Certified Public Accountants, 61 American International Group bailout (2008), 133–5, 144, 145, 148 antitrust laws, 59, 61, 75 Bear Stearns bailout (2008), 139, 145 Big Bang (1986), 156 Big Four, 2, 6, 9, 10 Bush administration (2001–2009), 98, 114, 145, 253 Celler–Kefauver Act (1950), 59, 61 certified public accountants, 53 Civil Rights Movement, 64 class-action lawsuit law (1966), 64 Congress, 56, 57, 58, 68, 73, 79–80, 98, 145 consultancy, 70–83 Department of Justice, 144, 161, 223 Eisenhower administration (1953–61), 76 Enron scandal (2001), see under Enron Federal National Mortgage Association (‘Fannie Mae’), 118–19, 145, 257 Federal Reserve, 122, 133 Federal Trade Commission, 79 FIFA indictment (2015), 219, 223 financial crisis (1873), 53 financial crisis (2007–8), see under financial crisis Founding Fathers, 53 Gilded Age (c. 1870–1900), 48 Glass–Steagall Act (1933), 60 ‘Go-Go’ years (1960s), 59, 62, 65 Great Crash and Depression (1929–39), 14, 57–8, 59–60, 66, 73, 75, 80, 118 Internal Revenue Code (1954), 154 Internal Revenue Service (IRS), 159, 160 International Accounting Standards, 123 Ivy League, 68 Johnson administration (1963–9), 63 Lehman Brothers collapse (2008), 12, 13, 92, 131–3, 138, 145, 148–9 limited liability partnerships, 91–2 Long Term Capital Management collapse (1998), 113 mergers and acquisitions, 59–62, 71 National Aeronautics and Space Administration (NASA), 76 Navy, 77 New Century Financial Corporation collapse (2007), 115–18, 257 Penn Central Transport Company collapse (1970), 64 presidential election (2000), 98 Public Company Accounting and Oversight Board (PCAOB), 144–5, 242–3, 253, 261, 274 railroads, 51, 52, 53, 70, 73 Reagan administration (1981–9), 80, 84, 154, 184 Roosevelt, Franklin administration (1933–45), 58 Roosevelt, Theodore administration (1901–9), 56–7 Sarbanes–Oxley Act (2002), 114, 122 savings-and-loan mutuals, 84–7, 91, 99 Securities Act (1933), 58 Securities and Exchange Commission (SEC), see under Securities and Exchange Commission Sunbeam collapse (2001), 97 Tax Reform Act (1986), 154 taxation, 67, 153–5, 159–63, 178 Trump administration (2017–), 17, 161, 273, 274 Vietnam War (1955–75), 63 Wall Street, 54, 69, 96, 101, 120–21 Washington Mutual collapse (2008), 145 Watergate Scandal (1972–4), 212 Westec collapse (1966), 63 World Congress of Accountants (1904), 56 WorldCom scandal (2002), 6, 10, 109, 110, 130, 209, 264, 274 United States Steel Corporation, 55, 62, 233 universal automatic computer (UNIVAC), 77–8 University of Chicago, 75, 84 University of Pennsylvania, 77 Unleashing the Department Store (Bower), 75 usury, 24, 26 Utopia, Limited, 52 Valcke, Jérôme, 225 value-added tax (VAT), 7, 179, 247 Vandemeulebroeke, Marc, 172, 173 Varley, Steve, 16, 200, 256, 258 Vatican, 25 Veihmeyer, John, 250 Venice, Republic of (697–1797), 18, 21, 24, 26, 32–6 Victoria, queen of the United Kingdom, 47 Vietnam, 102 Vietnam War (1955–75), 63 Vincent, Janice, 86 Virgil, 33 Virley, Simon, 205, 206, 207 Vodafone, 165–6 W.


pages: 405 words: 109,114

Unfinished Business by Tamim Bayoumi

algorithmic trading, Asian financial crisis, bank run, banking crisis, Basel III, battle of ideas, Ben Bernanke: helicopter money, Berlin Wall, Big bang: deregulation of the City of London, 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, hiring and firing, housing crisis, inflation targeting, 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, Robert Shiller, Rubik’s Cube, 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

As discussed earlier, this reflected a strong preference of national supervisors for domestic rather than foreign mergers. This contrasts with the smooth road to national banks in the United States, discussed in the next chapter. The second trend was the continuing rapid increase in the relatively large banking systems in the United Kingdom and Ireland that specialized in investment banking and where supervisors embraced “light touch” regulation. This continuing dynamism contrasted with the relative stagnation of the northern Euro area core in the early 2000s. Light touch regulation eroded the authority of other national supervisors, as their banks could argue that they also needed lenient supervision so as to level the playing field. National supervisors who insisted on maintaining a tough approach in the face of such regulatory competition also ran the risk that domestic banks would move major operations to UK and Irish subsidiaries, reducing national supervisors of the ability to observe the full activities of their banks.

The banks used the newly freed capital for further expansion, often plowing it back into investment banking since the associated capital charges were so low. European regulators did little to prevent this process as competition between national regulators provided few incentives to reign in the activities of national banks. A vivid illustration of the influence of regulatory competition in eroding bank supervision was the move to “light touch” regulation in the United Kingdom and Ireland in the early 2000s, which left their banks relatively free from supervision.29 In the end, the decision by the Basel Committee to allow banks to use internal models to calculate capital buffers for market risk generated exactly the kind of diminution in capital standards on investment banking in Europe that the Committee had originally been formed to avoid

Furthermore, despite passporting, the vast majority of such cross-border assets resided in subsidiaries rather than branches as a result of pressure from national regulators.31 Underlining the importance of such pressure, the much more open UK banking system was the most internationalized in the European Union, with fully half of bank assets owned by foreign banks (equally split between EU and non-EU banks). Boosted by light touch regulation, Ireland was the second most internationalized. The Creation of the Euro Area Mega-Banks A wave of bank mergers and acquisitions in the 1990s increased the role of a small number of large banks in the Euro area. While this can be measured in the aggregate—the share of assets in the largest five banks rose in every Euro area country between 1998 and 2002 with the exception of Finland—the more important part of the story involved the rapid rise of a small number of national mega-banks, tellingly called “national champions”.


pages: 543 words: 147,357

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

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

Debt and debt-related activity – construction and real estate services – had propelled half the growth since Labour had come to power, while manufacturing’s share of output had shrunk by two-fifths (to around 12 per cent) over the same period, a faster decline than in any other leading industrialised country.1 The politicians were enthusiastic cheerleaders throughout all of this. Finance was where innovation and entrepreneurship flowered, Prime Minister Blair and Chancellor Brown jointly proclaimed in a competition with the then Conservative opposition to fête the City of London. The factors that helped financial services – light-touch regulation, low taxes and labour market flexibility – allegedly helped all business. Governments should limit their intervention. Nor should they or society be concerned about City pay that was rising beyond the dreams of avarice because that was merely the price of global success. In the glory days of the boom, Britain was urged to enjoy the spiralling property prices and the rising consumption that came in the wake of the City’s credit creation and wheeler-dealing.

British bankers took the opportunity afforded by the abolition of exchange and capital controls, globalisation, Britain’s historic strength in financial services and the prevailing free-market ideology to build a position of influence in the British state that was much more formidable than any that had been enjoyed by the trade unions. The City reclaimed ancient privileges to restore its nineteenth-century position as an international financial centre, although this was now built upon proprietary trading in financial derivatives and securitisation. This was the purposeful, positive use of power to achieve a feasible aim – a dominant City of London. Light-touch regulation became as important a mantra to the City as free collective bargaining had been to the unions. Equally, the freedom to exploit tax havens and relieve foreign nationals from their tax obligations was as pivotal to City power as the unions’ insistence on legal immunity from damages in industrial disputes had been to theirs. Just as the unions portrayed themselves as essential to the construction of a Britain in which working-class interests would be enshrined, so the City portrayed itself as essential to a post-industrial Britain in which financial services would be in the vanguard of national wealth generation.

In this respect, the 1992 defeat overshadowed the next decade and a half in much the same way as 1945’s and 1979’s victories had. This meant that New Labour in office did not have the ideological conviction or the political will to check the increasingly reckless expansion of British finance and the City of London. Indeed, by 2007, City Minister Ed Balls and Chancellor Gordon Brown had become articulate advocates of ‘light-touch regulation’ and ‘financial innovation’, regarding finance as a sector in which Britain had an apparent comparative advantage that the state should actively promote. After 1992, Labour politicians were convinced that while they might win a mandate for social investment, notably in health and education, no mandate could be won for social democratic intervention in the economy. In any case, they had stopped believing in the intellectual argument for such an intervention.


pages: 457 words: 143,967

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

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

Brown also moved responsibility for supervising the banks from the Bank of England to a new regulator, the Financial Services Authority, which was given a dual brief of promoting as well as regulating the sector. Investment bankers and fund managers were warmly welcomed into numbers 10 and 11 Downing Street. They told the government that the economy worked best when markets were left to get on with things, and encouraged the authorities not to intervene. It led to light touch regulation, a laissez faire attitude to takeovers and a continuation of the City’s supremacy over other global financial capitals and within the UK economy. For Barrett’s Barclays, the political and regulatory environment for a bank could scarcely have been better. In contrast to the restrictive regime he had just left behind in Canada, Barrett found the British regulators taking seriously their new mission to promote the City, giving banks a free hand to run their businesses.

‘Barclays chief executive Matt Barrett candidly criticised his own product, suggesting that the astute consumer would do well to steer well clear of it,’ said the BBC.16 Other banks also attracted criticism for their charges, lack of transparency and (in the case of Fred Goodwin’s RBS) for sending a credit card application form to a dog called Monty. Such stories seemed only to add to the fun. These were the go-getting days of the free market and unfettered shareholder value in which the intervention of quasi-public bodies such as the Competition Commission were dismissed in favour of market solutions. Competition, it was believed, would protect the consumer, and light touch regulation rather than prescriptive interference was the order of the day. Barrett and the other chief executives saw off the complaints and got on with the job of making money for shareholders. Barrett saved Barclays. He came in at a time when the bank was vulnerable after the bloody departure of Martin Taylor. The retail bank was underperforming and the investment bank was in disgrace after the Russian calamity.

He said: ‘Government debt in Britain is lower than France, Germany, Italy, America and Japan,’ and predicted that the economy would be ‘stronger this year than last and stronger next year than this’.10 The City was in its pomp and the regulators helped it along. In the decade since its formation in 1997, the FSA had been more successful in delivering that part of its mandate which required it to protect the City’s interests than it had been in its primary task of regulating it. It was admired as an exponent of light touch regulation which was regarded as a reason for the City’s market share gains from New York where Wall Street lobbied for an equally light touch from its own regulators. In his June 2006 Mansion House speech, Brown claimed the credit for this: ‘In 2003, just at the time of a previous Mansion House speech, the Worldcom accounting scandal broke. And I will be honest with you, many who advised me, including not a few newspapers, favoured a regulatory crackdown.


pages: 1,066 words: 273,703

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

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

Lynch, “Trump’s Message to Bankers: Wall Street Reform Rules May Be Eliminated,” Reuters, April 11, 2017. 84. J. Dizard, “The Trump Era of Light-Touch Regulation Dawns,” Financial Times, July 2, 2017. 85. H. Levintova, “House Republicans Are Trying to Pass the Most Dangerous Wall Street Deregulation Bill Ever,” Mother Jones, June 7, 2017. 86. G. Bennett, “House Passes Bill Aimed at Reversing Dodd-Frank Financial Regulations,” NPR, June 8, 2017. 87. “A Financial System That Creates Economic Opportunities: Banks and Credit Unions—Core Principles for Regulating the United States Financial System,” US Treasury report to President Donald J. Trump, Executive Order 13772 (June 2017). 88. J. Dizard, “The Trump Era of Light-Touch Regulation Dawns,” Financial Times, July 2, 2017. 89. A. Scaggs, “Save the OFR,” Financial Times, June 15, 2017. 90.

Amid the intensity of the financial crisis, why should anyone care? Because the decision made by the American crisis fighters to take those questions off the table and to give absolute priority to saving the financial system shaped everything else that followed. It set the stage for a remarkable and bitterly ironic inversion. Whereas since the 1970s the incessant mantra of the spokespeople of the financial industry had been free markets and light touch regulation, what they were now demanding was the mobilization of all of the resources of the state to save society’s financial infrastructure from a threat of systemic implosion, a threat they likened to a military emergency. Chapter 7 BAILOUTS The ferocity of the financial crisis in 2008 was met with a mobilization of state action without precedent in the history of capitalism. Never before outside wartime had states intervened on such a scale and with such speed.

Though a member of the eurozone and benefiting enormously from Brussels subsidy payments, the Irish liked to regard themselves as an “outpost of American (or Anglo-American) free-market values on the far edge of a continent where various brands of social democracy were still the political norm.”45 In the American presidential election of 2008, the world was treated to the incongruous spectacle of Phil Gramm, chief champion of deregulation in Congress in the 1990s and economic adviser to Republican hopeful John McCain, touting Ireland as the beau ideal of a low-tax economy. Disgraced former prime minister Bertie Ahern toured the world selling audiences on the benefits of “extreme economic globalisation, low personal and corporate taxes, ‘business-friendly’ government and light regulation.” IV There are many risks involved in forming a currency union and it would no doubt have made sense for Europe to have added a fiscal constitution. 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.


pages: 241 words: 63,981

Dirty Secrets How Tax Havens Destroy the Economy by Richard Murphy

banking crisis, barriers to entry, Bernie Sanders, centre right, corporate governance, Donald Trump, Double Irish / Dutch Sandwich, en.wikipedia.org, high net worth, income inequality, intangible asset, light touch regulation, moral hazard, Occupy movement, offshore financial centre, race to the bottom, Social Responsibility of Business Is to Increase Its Profits, The Wealth of Nations by Adam Smith, transfer pricing, Washington Consensus

The Liberian shipping register, which is actually operated from the United States, is well known, but plays second fiddle to the largest of all, Panama, which is reported to have more registered vessels than the whole of the United States and China combined. The Marshall Islands come third, followed by Hong Kong, Singapore, the Bahamas and Malta, in that order – all of them tax havens. Gambling is another area in which tax havens provide light-touch regulation. Gibraltar is a particularly big player in this market, and is the home, according to the Financial Times, of the online gambling operations of most major UK betting companies, and of thirty-four gambling companies in all.26 The attractions are low tax and light-touch regulation, which mainstream states have not been able to match when trying to secure internet gambling revenues, in which players have little concern where the company they are dealing with is located. This issue of location has led to international tensions.

Google has claimed, with varying degrees of tax success, that it makes almost all its sales of advertising services to countries outside the United States, from its base in Ireland.27 Investigations by the UK’s House of Commons Public Accounts Committee and others have shown that Google usually has fewer staff in Ireland servicing each international market than it has in each sales destination, and that, in a country like the UK, the locally based staff are paid more than their equivalent team members in Ireland – and yet it is still claimed by Google that it is the Irish staff who conclude contracts, not the locally based negotiators.28 This claim is supported by the suggestion that the contract between the customer and Google is finally concluded on its fileserver in Ireland: the ambiguity as to location, which is a recurring feature of the tax haven story, has been exploited in this case to massively reduce the overall rate of tax paid by Google outside the United States.29 CHAPTER 4 The Tax Haven World Tax Haven Products Putting aside the legislation that imposes light-touch regulation behind a veil of secrecy, tax havens really only offer three products. They are, in essence, companies, trusts and foundations (which are a variation on trusts). The important thing to note about offshore companies, trusts and foundations is that they are not much like the onshore varieties of the same thing. This is important. Whereas society has found companies, trusts and foundations – when subject to proper regulation, governance, taxation and accountability – can play a useful role in promoting a healthy economy, it is very hard to say the same of their offshore cousins.


pages: 333 words: 76,990

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

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

As with the excitement about the possibilities of faster communications following the first transcontinental calls in 1915, expectations were boosted by dramatic falls in the cost of communication in the 1990s, when the speed of communication accelerated at an even faster rate than before, and with similar consequences. The cost of a three-minute telephone call from New York to London fell from $4.37 in 1990 (in 2000 dollars) to $0.40 in 2000.19 Deregulation and Financial Innovation Light touch regulation, or deregulation, is often an ingredient in the buildup of financial bubbles. In the railway boom of the early 19th century in Great Britain, for example, the repeal of the Bubble Act in 1825, introduced after the collapse of the South Sea bubble in 1720, was an important development. Aimed at controlling the formation of new companies, it limited the number of investors in joint stock companies to just five.

Between 1994 and 2000 the notional amounts of derivatives in interest rates and currency grew 457%, which is equivalent to the 452% growth from 2001 to 2007.21 Although derivative markets boomed in the 2000s, other forms of innovation were at play in the housing market and were central to the sub-prime boom and subsequent banking and stock market collapse of 2007/2008. This bubble was not really so evident in the stock market valuation more broadly, although its collapse did result in huge falls in stock prices. Light touch regulation of financial institutions, together with financial product innovation, were an important ingredient in the housing boom that preceded the collapse. As Carlota Perez (2009) put it, ‘the term “masters of the universe”, often quoted to refer to the financial geniuses that were supposed to have engineered the unending prosperity of the mid-2000s, expresses the way in which they were seen as powerful innovators, spreading risk and somehow magically evaporating it in the vast complexity of the financial galaxy’.

Index 100 year bond 34 1920s, United States 148, 154, 157, 160 1945-1968, post-war boom 129–131 1960s ‘Nifty Fifty’ 114, 130–131, 233, 235 structural bear market 130 1970s Dow Jones 131 equity cycle 56 oil crisis 108 1980s bull markets 131–133 Dow Jones 15–16, 131–132 equity cycle 56–57 Japan 114, 148–149, 155–156, 158, 160–161, 162, 164 technology 12–15 1990s 16–17 Asia crisis 108, 133 equity cycle 57 S&P concentration 114 technology bubble 33, 93–94, 149–150, 156–157, 158–159, 161, 164 2000-2007 equity cycle 57 2007-2009 financial crisis 169–174 emerging markets 171–173 forecasting 19–21 growth vs. value company effects 94–96 impact 169–170 phases 171–174 quantitative easing 173–174, 178–179 sovereign debt 170, 171–173 structural bear market 110, 118–119 A accounting, bubbles 163–165 adjustment speed 74, 89–90 Akerflof, G.A. 23 American Telephone and Telegraph (AT&T) 154, 225, 235–236, 238 Asia crisis, 1998 108, 133 ASPF see Association of Superannuation and Pension Funds asset classes across phases 66–68 contractions and expansions 63–65 cyclical 83–89 defensive 83–89 diversification 42, 45–47, 178–179 growth 83–84, 90–96 and inflation 65–66, 70 levels of yield 74–76 relationship through cycle 68–76 returns across cycle 63–79 speed of adjustment 74 structural shifts 76–79 value 83–84, 90–96 see also bonds; commodities; equities Association of Superannuation and Pension Funds (ASPF) 77 AT&T see American Telephone and Telegraph austerity 239 Austria, 100 year bond 34 B bank margins 214–215 bear markets 49, 99–125 1960s 130 characteristics 100–106, 117–118 cyclical 105, 106–107 deflation 109, 113 duration 100–101, 106–111, 117 employment 121–124 event-driven 105, 107–109 false negatives 119–120 financial crisis 118–119 growth momentum 122–123 indicators 106, 108, 109–110, 119–125 inflation 101–103, 109, 121–122 interest rates 106, 111–113 prior conditions 121–124 private sector financial balance 124 profitability 115–117 recovery 101 risk indicator vs MSCI index 124–125 S&P 500 103–105 structural 105 triggers 101–105, 106, 108, 111 valuations 123 yield curve 122 behavioural factors 5, 22–25 Berlin Wall, fall of 133 Bernanke, B. 133 betas 65, 85 ‘Big Bang’ deregulation 12 Bing 237 Black Monday 16, 102, 148 Black Wednesday 16–17 ‘bond-like’ equities 96 bonds, 100 year 34 bond yields across phases 66–68, 72–76 current cycle 95–96, 191–193, 201–220 cyclical vs. defensive companies 87–88 and demographics 215–217 and equity valuations 72–76, 206–208 and growth companies 92–94 historical 43, 202 and implied growth 210–215 and inflation 65, 70 quantitative easing 173–174, 202–205 and risk asset demand 217–220 S&P 500 correlation 72–73 speed of adjustment 74, 89–90 ultra-low 201–220 and value companies 92–94 vs. dividends 78–79 vs. equities 43–45, 68–76, 78–79 Bretton Woods monetary system 102, 130–131 broadcast radio 154, 225 Bubble Act 147, 157 bubbles 143–165 1920s US 148, 154, 157, 160 1980s Japan 114, 148–149, 155–156, 158, 160–161, 162, 164 accounting 163–165 canal mania 152 characteristics 145–146 deregulation 157–159 easy credit 160–161 famous 145 financial innovation 158–159 government-debt-for-equity swaps 151–152 Mississippi Company 147, 151 ‘new eras’ 150–157 personal computers 155 psychology 144–145 radio manufacturing 154 railways 148, 152–154, 157, 160, 163 Shanghai composite stock price index 156 South Sea Company 147, 151, 153 structural bear markets 113 sub-prime mortgages 70, 102, 118, 133, 145, 159 technology, 1990s 33, 93–94, 149–150, 156–157, 158–159, 161, 164 tulip mania 146–147 valuations 161–162 bull markets 49, 127–142 characteristics 127–141 composition 138 cyclical 134–136 disinflation 131–133 duration 136–138, 139–141 equity performance 135–136 Great Moderation 133–134, 187–189 non-trending 138–141 post-war boom 129–131 quantitative easing 134 secular 127–134 United States 136 C canal mania 152 CAPE see cyclically adjusted price-to-earnings ratio capital investment, Juglar cycle 3 CDO see collateralised debt obligations characteristics bear markets 100–109, 111, 117–118 bubbles 145–146 bull markets 127–141 cyclical bear markets 106–107 event-driven bear markets 108–109 structural bear markets 111 China 15, 156 Cold War 14–15, 133 collateralised debt obligations (CDO) 159 commodities across phases 66–68 Kitchin cycle 3 composition of bull markets 138 concentration structural bear markets 115 and technology 238–240 contractions asset performance 63–65 mini cycles 60 see also recessions Cooper, M. 162 corporate debt 65, 110, 114, 160–161 corporate profitability bear markets 107, 115–117 current equity cycle 185–186 monetary policy 239 credit crunch 78–79, 170, 171 crowds, psychology of 21–22, 144–145 cult of the equity 77–78 current equity cycle 57–58, 167–240 bank profitability 214–215 bond yields 191–193 demographic shifts 215–217 drivers 179–180 earnings per share 195–196 employment and unemployment 183–185 equity valuations 206–208 ‘first mile problem’ 226–227 future expectations 246–247 global relative performance 193–196 growth momentum 174–178, 182–183, 227–231 growth and value companies 190–196, 239–240 implied growth 210–215 inflation 180–182, 203–205 interest rates 180–182, 239–240 Japan, lessons from 196–200 lessons from 244–245 market and economy incongruence 174–178 monetary policy 178–179, 201–205 opportunities 230–231 profitability 185–186 quantitative easing 202–205 returns 174–179 risk asset demand 217–220 structural changes 76–79, 93–96, 169–200 technology 189–190, 221–241 term premium collapse 204–205 ultra-low bond yields 201–220 valuations 233–235 volatility 187–189 cycles 1970s 56 asset returns 63–79 cyclical vs. defensive companies 85–89 equities 49–62 growth vs. value companies 90–96 investment styles 81–96 long-term returns 29–47 riding 11–27 sectors 83–85 valuations 53 cyclical bear markets 105, 106–107, 117, 118 vs. event-driven 109 cyclical bull markets 134–136 cyclical companies bond yields 193 inflation 88 sectors 83–84 vs. defensive 85–89 cyclical growth 83–84 cyclically adjusted price-to-earnings ratio (CAPE) 37–38, 44–45 cyclical value 83–84 D DDM see discounted dividend model debt levels bubbles 160–161 structural bear markets 110, 114 decarbonization 13 defensive companies 63–65 bond yields 193 inflation 88 Japan 198 sectors 83–84 vs. cyclical 85–89 defensive growth 83–84 defensive value 83–84 deflation bear markets 109, 113 Volker 102, 131 delivery solutions 226–227 demographics and zero bond yields 215–217 deregulation 12, 132–133, 157–159 derivative markets 158–159 design of policy 25–26 despair phase 50–52, 53, 55–56, 60, 66–68 cyclical vs. defensive companies 86, 88 growth vs. value companies 92 Dice, C. 161 Dimitrov, O. 162 discounted dividend model (DDM) 36, 69 discount rate 68 disinflation 131–133 disruption 1980s 12–15 current equity cycle 189–190, 221–241 electricity 226 historical parallels 222–227 printing press 223–224 railway infrastructure 224–227 telecoms 225–226 divergence, and technology 238–240 diversification 42, 45–47, 178–179 dividends asset yields 38–41, 69 reinvestment 38–40 value of future streams 209 vs. bonds 78–79 Dodd, D. 163, 164 domain registrations 12–13 dominance of technology 231–233 dotcoms 12–13, 33, 93–94, 102, 161, 237 Dow Jones 1970s 131 1980s 15–16, 131 Black Monday 16, 102, 148 Draghi, M. 17, 173 drivers of bull markets 138 current equity cycle 179–180 duration bear markets 100–101, 106–111, 117 bull markets 135–138, 139–141 cyclical bear markets 106–107, 117, 118 cyclical bull markets 135–136 dominance of technology 231–233 event-driven bear markets 108–109, 117–118 non-trending bull markets 139–141 structural bear markets 109–111, 117 term premia 204–205 DVDs 227 E earnings per share (EPS) bear markets 115–117 historical 189 since pre-financial crisis peak 195–196, 209–210 easy credit, and bubbles 160–161 ECB see European Central Bank Economic Recovery Act, 1981 132 efficient market hypothesis 4 electricity 226 email 13 employment 121–124, 183–185 Enron 164 environmental issues 13 EPS see earnings per share equities across phases 66–68 ‘bond-like’ 96 and bond yields 72–73, 74–76, 206–208 bull market performance 135–136 CAPE 37–38, 44–45 dividends 38–41, 69, 78–79, 209 and inflation 65–66, 70 mini/high-frequency cycles 58–61 narrowing and structural bear markets 114–115 overextension 36–37 phases of investment 50–58 quantitative easing 173–174, 178–179 S&P 500 historical performance 42 valuations and future returns 43–45 vs. bonds 43–45, 68–76, 78–79 equity cycle 49–62 1970s 56 1980s 56–57 1990s 57 2000-2007 57 current 57–58, 76–79 historical periods 56–58 length 49 mini/high-frequency 58–61 phases 50–56 structural shifts 76–79 equity risk premium (ERP) 35–38, 69–72, 210 ERM see exchange rate mechanism ERP see equ ity risk premium ESM see European stability mechanism Europe dividends 39–40 exchange rate mechanism 16–17, 111 Maastricht Treaty 17 market narrowing in 1990s 115 privatisation 132 quantitative easing 17, 204–205 sovereign debt crisis 170, 171–173 European Central Bank (ECB) 17, 171, 173 European Recovery Plan 129–131 European stability mechanism (ESM) 173 event-driven bear markets 105, 107–109, 117–118 vs. cyclical 109 excess see bubbles exchange rate mechanism (ERM) 16–17, 111 exogenous shocks 108 expansions, asset performance 63–65 F false negatives, bear markets 119–120 fat and flat markets 128, 139 features see characteristics Federal Reserve 16, 102, 131, 134, 150–151, 157, 203 financial crisis, 2007–2009 169–174 forecasting 19–21 growth vs. value company effects 94–96 impact 169–170 structural bear market 110, 118–119 financial innovation 158–159 ‘first mile problem’ 226–227 Fish, M. 19 fixed costs 84–85, 173–174 fixed income assets 35, 65, 69–70, 205 flat markets 138–141 see also non-trending bull markets forecasting 2008 financial crisis 19–21 bear markets 106, 108, 109–110, 119–125 behavioural aspects 22–25 difficulties of 18–22 future growth 211–212 neuroeconomics 24–25 and policy setting 25–26 recessions 20–21 and sentiment 21–25 short-term 17–18 weather 18–19 France Mississippi Company 147, 151 privatisation 132 Fukuyama, F. 15 future expectations 246–247 G Galbraith, J.K. 160 GATT see General Agreement on Tariffs and Trade General Agreement on Tariffs and Trade (GATT) 129 Germany Bund yield 207 fall of Berlin Wall 133 wage inflation 185 Glasnost 14 Glass-Steagall Act, 1933 132 global growth 182–183 globalisation 14–16 global relative performance 193–196 global sales growth 212 global technology bubble 33, 93–94, 149–150, 156–157, 158–159, 161, 164 Goetzmann, F. 151 ‘Golden Age of Capitalism’ 129–131 Gold Standard 130 see also Bretton Woods monetary system Goobey, G.R. 77 Google 237 Gorbachev, M. 14 Gordon Growth model 209 government-debt-for-equity swaps 151–152 Graham, B. 161, 163, 164 Great Britain South Sea Company 147, 151, 153 see also United Kingdom Great Depression 4 Great Moderation 133–134, 187–189 Greenspan, A. 16, 113, 150–151 gross domestic product (GDP) cyclical vs. defensive companies 87 labour share of 185, 238–239 phases of cycle 52–53 profit share of, US. 186 growth bear markets 122–123 current equity cycle 174–178, 182–183, 227–231 technology impacts 227–231 and zero bond yields 208–210, 210–215 growth companies bond yields 92–94, 191–193 current cycle 190–196 definition 90–91 since financial crisis 94–96 interest rates 92–94 outperformance 239–240 sectors 83–84 vs. value 90–96 growth phase 50–52, 54–56, 67–68 cyclical vs. defensive companies 86 growth vs. value companies 92 Gulf war 102 H herding 21–22, 144–145 high-frequency cycles 58–61 historical performance 10 year bonds, US 43 bonds 43, 202 equities cycles 49, 56–58 S&P 500 38–39, 42 trends 29–31 holding periods 31–34 Holland, tulip mania 146–147 hope phase 50–52, 53–54, 55–56, 66–67 cyclical vs. defensive companies 86 growth vs. value companies 92 housing bubble, US 70, 102, 118, 133, 145, 159 Hudson, G. 163 I IBM 13, 155, 236 IMAP see Internet Message Access Protocol IMF see International Monetary Fund impacts of diversification 42, 45–47 financial crisis, 2007-2009 169–170 technology on current cycle 221–241 ultra-low bond yields 201–220 Imperial Tobacco pension fund 77 implied growth 210–215 income, Kuznets cycle 3 indicators bear markets 106, 108, 109–110, 119–125 cyclical bear markets 106 event-driven bear markets 108 structural bear markets 109–110 industrial revolution 224–226 industry leadership, S&P 500 232–233, 237–238 inflation asset performance 65–66, 70 bear markets 101–103, 109, 121–122 current equity cycle 180–182, 203–205 cyclicals 88 Volker 102, 131 Institute of Supply Management index (ISM) 59–61 bear markets 123 cyclical vs. defensive companies 86–87 interest rates bear markets 106, 111–113 current equity cycle 180–182, 239–240 growth vs. value companies 92–94 structural bear markets 111–113 and yield 69, 74–76 International Monetary Fund (IMF) 129 internet 12–13, 225–227 search 237 see also dotcoms Internet Message Access Protocol (IMAP) 13 inventories 84–85 Kitchin cycle 3 investment, Juglar cycle 3 investment cycle bear markets 122–123 current 57–58, 76–79 historical periods 56–58 lengths 49 mini/high-frequency 58–61 phases 50–56 structural shifts 76–79 see also cycles ISM see Institute of Supply Management index J Japan bubbles 114, 148–149, 155–156, 158, 160–161, 162, 164 defensive companies 198 dividends 39–40 lessons from 196–200 John Crooke and Company 160 Juglar cycle 3 K Kahneman, D. 22–23 Kennedy Slide bear market 102 Keynes, J.M. 22 Kindleberger, C.P. 22 Kitchin cycle 3 Kondratiev cycle 3 Kuznets cycle 3 L labour share of GDP 185, 238–239 land and property bubble, Japan 114, 148–149, 155–156, 158, 160–161, 162, 164 laptop computers 13 largest companies S&P 500 237–238 technology 234–237 light touch regulation 157–159 see also deregulation Live Aid 13–14 Loewenstein, G. 21–22 long-term returns 29–47 M Maastricht Treaty 17 Mackay, C. 21 market forecasts short-term 17–18 see also forecasting market narrowing structural bear markets 114–115 and technology 238–240 markets current equity cycle 174–178 psychology of 21–25, 144–145 see also bear markets; bubbles; bull markets market timing 41–43 market value of technology companies 234, 235–238 Marks, H. 6–7 Marshall Plan 129–131 MBS see mortgage-backed securities Microsoft 12, 236–237 mini cycles 58–61 Mississippi Company 147, 151 monetary policy 157–159, 178–179, 201–205, 239 austerity 239 European Central Bank 17, 171, 173 Federal Reserve 16, 102, 131, 134, 150–151, 157, 203 quantitative easing 17, 70–71, 119, 133–134, 173–174, 178–179, 202–205 Montreal Protocol 13 mortgage-backed securities (MBS) 159 MSCI indices 91 N narrow equity markets 114–115, 238–240 NASDAQ 149–150, 161 negative bond yields 201–220 demographics 215–217 and equity valuations 206–208 and growth 208–210 implied growth 210–215 monetary policy 201–205 quantitative easing 202–205 risk asset demand 217–220 neuroeconomics 24–25 ‘new eras’ 113–114, 150–157 ‘Nifty Fifty’ 114, 233 non-trending bull markets 138–141 nudges 26 O oil 108, 226 opportunities, technology 230–231 optimism phase 50–52, 54–56, 67–68 cyclical vs. defensive companies 86 growth vs. value companies 91–92 output gaps 4 Outright Monetary Transactions (OMT) 171, 173 overextension 36–37 ozone layer 13 P pension funds 77, 218–219 Perestroika 14 Perez, C. 159 performance bull markets 134–136 current equity cycle 174–179 and cycles 53–56 diversification impacts 42, 45–47 dividends 38–41 equities vs. bonds 43–45 factors 41–45 historical trends 29–31 holding periods 31–34 interest rates 69, 74–76 long-term 29–47 market timing 41–43 risks and rewards 35–38 valuations 43–45 volatility 30–31 personal computing introduction 12–13, 155 phases 2007-2009 financial crisis 171–174 asset classes 66–68 bear markets 123 cyclical vs. defensive companies 86 of equities cycle 50–56 growth vs. value companies 91–92 Phillips curve 182 Plaza Accord, 1985 148–149, 158 PMI see purchasing managers’ index policy, design of 25–26 population decline 216 post-financial crisis see current equity cycle post-war boom 129–131 prediction see forecasting price-to-earnings ratio (P/E) 53–56 printing press 223–224 prior conditions to bear markets 121–124 private sector debt 65, 110, 114, 160–161 private sector financial balance 124 privatisation 132 productivity growth 227–230 profit labour share of 185, 238–239 share of GDP, US. 186 profitability banks 214–215 bear markets 107, 115–117 current equity cycle 185–186 property and land bubble, Japan 114, 148–149, 155–156, 158, 160–161, 162, 164 psychology bubbles 144–145 of markets 21–25 policy setting 25–26 public ownership 132 purchasing managers' index (PMI) 59–61, 86–87, 89–90 Q QE see quantitative easing Qualcom 149–150 quality companies 193 quantitative easing (QE) asset returns 70–71, 119, 178–179 bond yields 173–174, 202–205 start of 17, 133–134, 171 United Kingdom 17, 204–205 United States 134, 171, 202–204 R radio, expansion of 154, 225 Radio Corporation of America (RCA) 154 railways bubbles UK 148, 152–153, 157, 163 US 153–154, 160 infrastructure development 224–227 Rau, P. 162 RCA see Radio Corporation of America Reagan, R. 14, 131–132 real assets 68 real estate bubble, US 70, 102, 118, 133, 145, 159 recessions bear markets 101–103 current equity cycle 174–178 forecasting 20–21 recovery bear markets 101 current equity cycle 174–178 reinvestment of dividends 38–40 return on equity (ROE) 43–45 returns bull markets 134–136 current equity cycle 174–179 cycles 53–56 diversification impacts 42, 45–47 dividends 38–41 equities vs. bonds 43–45 factors 41–45 historical trends 29–31 holding periods 31–34 interest rates 69, 74–76 long-term 29–47 market timing 41–43 risks and rewards 35–38 valuations 43–45 volatility 30–31 reverse yield gap 77 risk assets, demand for 217–220 risk-free interest rate 68 risk indicators bear markets 119–125 event-driven bear markets 108 structural bear markets 110–111, 113–114 risk premia equity 35–38, 69 neuroeconomics 25 term premia 204–205 ROE see return on equity Rouwenhorst, G. 151 Russian debt default, 1997 108 S S&P 500 bear markets 103–105 and bond yields 72–73 concentration in 1990s 115 dividends 38–39 historical performance 38–39, 42 industry leadership 232–233, 237–238 and ISM 60 largest companies 237–238 US Treasury yields 206 sales growth 212 savings, current equity cycle 182 Schumpeter, J. 150 search companies 237 ‘search for yield’ 217–220 secondary-market prices 229–230 sectors across the cycle 83–85 dominance 231–233 secular bull market 127–134 disinflation 131–133 Great Moderation 133–134, 187–189 post-war boom 129–131 secular stagnation hypothesis 181 sentiment 5, 21–25 see also bubbles Shanghai composite stock price index 156 Shiller, R.J. 4–5, 23 short-term market forecasts 17–18 skinny and flat markets 139–140 smartphones 226, 229–230 Solow, R. 229 South Sea Company 147, 151, 153 sovereign debt crisis 170, 171–173 Soviet Union 14–15, 133 speed of adjustment 74, 89–90, 122–123 Standard Oil 235 structural bear markets 105, 109–115 1960s 130 bubbles 113 debt levels 110, 114 deflation 113 duration 109–111, 117 financial crisis, 2007 118–119 interest rates 111–113 narrow equity markets 114–115 ‘new eras’ 113–114 risk indicators 110–111, 113–114 triggers 111 volatility 105, 115 structural changes 6 1980s 12–15 current equity cycle 76–79, 93–96, 169–200 sub-prime mortgage bubble 70, 102, 118, 133, 145, 159 Summers, L. 181 Sunstein, C.R. 26 ‘super cycle’ secular bull market 127–134 see also secular bull market T technology 1920s America 154 bubble in 1990s 33, 93–94, 149–150, 156–157, 158–159, 161, 164 current equity cycle 189–190, 221–241 and disruption in 1980s 12–15 dominance 231–233 and growth 227–231 historical parallels 222–227 industrial revolution 224–226 Kondratiev cycle 3 largest companies 234–237 market value 234, 235–238 opportunities 230–231 personal computers 12–13, 155 printing press 223–224 railway bubbles 148, 152–154, 157, 160, 163 railway infrastructure 224–227 and widening gaps 238–240 telecommunications 13, 154, 225, 235–236, 238 telegrams 225 term premium collapse 204–205 TFP see total factor productivity growth Thaler, R.H. 26 Thatcher, M. 14, 132 Tokkin accounts 158 ‘too-big-to-fail’ 133 total factor productivity (TFP) growth 238–240 triggers bear markets 101–105, 106, 108, 111 cyclical bear markets 106 event-driven bear markets 108 structural bear markets 111 tulip mania 146–147 Tversky, A. 22–23 U ultra-low bond yields 201–220 demographics 215–217 and equity valuations 206–208 and growth 208–210 implied growth 210–215 monetary policy 201–205 quantitative easing 202–205 risk asset demand 217–220 UNCTAD see United Nations Conference on Trade and Development unemployment 121–124, 183–185 unexpected shocks 108 United Kingdom (UK) Black Wednesday 16–17 bond yields, historical 202 canal mania 152 deregulation 132 exchange rate mechanism 16–17, 111 privatisation 132 quantitative easing 204–205 railway bubble 148, 152–153, 157, 163 South Sea Company 147, 151, 153 United Nations Conference on Trade and Development (UNCTAD) 129 United States (US) 10 year bond returns 43 Black Monday 16, 102, 148 bull markets 136 credit crunch 78–79, 170, 171 disinflation 132 dividends 38–39 Dow Jones 15–16, 131 equities in current cycle 207–208 housing bubble 70, 102, 118, 133, 145, 159 labour share of GDP 185, 238–239 market narrowing 114 NASDAQ 149–150, 161 ‘Nifty Fifty’ 114, 130–131, 233, 235 post-war boom 129–131 profit share of GDP 186 quantitative easing 133–134, 171, 202–204 radio manufacturing 154, 225 railway bubble 153–154, 160 stock market boom, 1920s 148, 154, 157, 160 vs.


pages: 160 words: 46,449

The Extreme Centre: A Warning by Tariq Ali

Affordable Care Act / Obamacare, Berlin Wall, bonus culture, BRICs, British Empire, centre right, deindustrialization, Edward Snowden, Fall of the Berlin Wall, financial deregulation, first-past-the-post, full employment, labour market flexibility, land reform, light touch regulation, means of production, Mikhail Gorbachev, Monroe Doctrine, mortgage debt, negative equity, Neil Kinnock, North Sea oil, obamacare, offshore financial centre, popular capitalism, reserve currency, Ronald Reagan, South China Sea, The Chicago School, The Wealth of Nations by Adam Smith, trade route, trickle-down economics, Washington Consensus, Westphalian system, Wolfgang Streeck

Tony Blair prancing about in his shirtsleeves while his spin doctor, Alastair Campbell, organized the Kosovans to chant ‘Tony, Tony, Tony’ was one of the more grotesque footnotes to this unnecessary tragedy. In reality, Britain had little independence. Its main function was to provide mercenaries to buttress US hegemony. There, in a nutshell, was the grim reality of New Labour Britain. Thatcherite ‘modernization’ was thus nurtured by Blair and refined by Brown into the creation of an overblown financial sector, a City of London protected by ‘light-touch’ regulation. It is shocking to note that there were fewer regulators for the whole of Britain than for the insurance industry alone in the United States. This, in turn, produced huge salaries and bonuses for the top layers and a few crumbs for the former industrial regions of the country. Blair’s subsequent electoral triumphs were used to cement the New Labour project. But the political geography, when decoded, told a different story.

Since British economic and foreign policies are now in tandem with those of its imperial master, British leaders sometimes attempt to stand out by pre-empting US decisions and posturing as being tougher on assorted ‘enemies’ than Washington itself.1 As Edward Snowden has revealed, British intelligence-gathering outposts like GCHQ operate with impunity. The relative autonomy they enjoy – with less restraints than the NSA – is extremely useful for the latter, which treats GCHQ as a valued surrogate. Similarly, till 2008, British politicians liked to boast that the local ‘light-touch regulation’ put the City of London well ahead of Wall Street, as Britain’s current standing as a virtual tax haven still does, approaching Luxembourg levels if not yet those of the Cayman islands. Given this reality, the right-wing obsession with the European Union seems a bit misplaced. It’s with Washington (not Brussels) that London has long been stuck in the dog-like coital lock sometimes described as a ‘special relationship’.


pages: 182 words: 53,802

The Production of Money: How to Break the Power of Banks by Ann Pettifor

Ben Bernanke: helicopter money, Bernie Madoff, Bernie Sanders, bitcoin, blockchain, borderless world, Bretton Woods, capital controls, Carmen Reinhart, central bank independence, clean water, credit crunch, Credit Default Swap, cryptocurrency, David Graeber, David Ricardo: comparative advantage, debt deflation, decarbonisation, distributed ledger, Donald Trump, eurozone crisis, fiat currency, financial deregulation, financial innovation, financial intermediation, financial repression, fixed income, Fractional reserve banking, full employment, Hyman Minsky, inflation targeting, interest rate derivative, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, light touch regulation, London Interbank Offered Rate, market fundamentalism, Martin Wolf, mobile money, Naomi Klein, neoliberal agenda, offshore financial centre, Paul Samuelson, Ponzi scheme, pushing on a string, quantitative easing, rent-seeking, Satyajit Das, savings glut, secular stagnation, The Chicago School, the market place, Thomas Malthus, Tobin tax, too big to fail

Greenspan later went on to explain, ‘[I had] found a flaw in the model that I perceived as the critical functioning structure that defines how the world works, so to speak … That’s precisely the reason I was shocked, because I had been going for forty years or more with very considerable evidence that it was working exceptionally well.’ Over this period, and thanks to the pervasive influence of the economic orthodoxy espoused by Mr Greenspan and others, western governments used markets as ‘the unrivalled way to organise economies’. ‘Light-touch regulation’, ‘outsourcing’, ‘globalisation’ and other policy changes were cheered on as ways to effectively transfer control of the public good that is the monetary system to private wealth. The orthodoxy conceded two great powers to private bankers and financiers: first, the ability to create, price and manage credit without effective supervision or regulation; second, the ability to ‘manage’ global financial flows across borders – and to do so out of sight of the regulatory authorities.

Third, despite denying the ‘primitive commodity view of money’ classical economists think of the supply of money as potentially scarce or excessive, just as there can be gluts and shortages of commodities.16 Benes and Kumhof explain that bankers’ behaviour can lead to an ‘excess or shortage’ of the money supply which in turn leads to either inflation or deflation. By focusing on the behavior of bankers, they ignore the regulatory context: the easy ‘light-touch regulation’ under which public authorities permit banks to lend. They ignore, too, the willingness or reluctance to borrow by firms or individuals, and their role in expanding or contracting the money supply. And nor do they discuss or analyse the wider economic conditions under which bankers lend. This approach of focusing narrowly on the money supply ignores what money is lent for. Instead it is assumed that the supply and contraction of credit is simply a matter of wilful choice by bankers.


pages: 193 words: 11,060

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

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

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.

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


pages: 82 words: 21,414

The Myth of Meritocracy: Why Working-Class Kids Still Get Working-Class Jobs (Provocations Series) by James Bloodworth

Berlin Wall, Bernie Sanders, Bob Geldof, Boris Johnson, cognitive dissonance, Downton Abbey, gender pay gap, glass ceiling, income inequality, light touch regulation, precariat, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, unpaid internship, upwardly mobile, We are the 99%, zero-sum game

The excesses of the rich during the Blair and Brown years have made it fashionable to retrospectively dismiss the New Labour project as a pale imitation of the Conservative Party. With respect to the poor, such arguments do not stand up to even a modicum of scrutiny. Under Blair and Brown there was a serious drive to improve the lot of Britain’s most economically vulnerable citizens. New Labour spent significant sums of money on public services and on policies such as tax credits for low-paid workers. Light-touch regulation of the banks was accompanied by Sure Start Centres for underprivileged children and record spending on the National Health Service. As a result of these spending priorities, both absolute and relative income poverty fell significantly among both children and pensioners between 1997 and 2010. This was not simply the fruit of a booming economy, but the result of deliberate spending decisions taken by successive New Labour governments.


pages: 414 words: 101,285

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

"Robert Solow", air freight, Andrei Shleifer, Asian financial crisis, asset-backed security, bank run, barriers to entry, Basel III, Berlin Wall, Bretton Woods, BRICs, business cycle, butterfly effect, clean water, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, connected car, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, discovery of penicillin, diversification, diversified portfolio, Douglas Engelbart, Douglas Engelbart, Edward Lorenz: Chaos theory, energy security, eurozone crisis, failed state, Fellow of the Royal Society, financial deregulation, financial innovation, financial intermediation, fixed income, Gini coefficient, global pandemic, global supply chain, global value chain, global village, income inequality, information asymmetry, Jean Tirole, John Snow's cholera map, Kenneth Rogoff, light touch regulation, Long Term Capital Management, market bubble, mass immigration, megacity, moral hazard, Occupy movement, offshore financial centre, open economy, profit maximization, purchasing power parity, race to the bottom, RAND corporation, regulatory arbitrage, reshoring, Silicon Valley, six sigma, Stuxnet, supply-chain management, The Great Moderation, too big to fail, Toyota Production System, trade liberalization, transaction costs, uranium enrichment

What this literature clearly shows is that even a slight deviation from perfect rationality can lead to financial instability when banks issue excessive numbers of securities. So why would banks want to issue securities in the first place, and, more important, why did regulators allow them to do so? When banks started issuing securitized assets they engineered a way to increase the share of highly rated assets and subsequently reduced the amount of capital they had to hold. In combination with light-touch regulation, securitization allowed banks to leverage up to unprecedented levels (see figure 2.3). Through securitization, risks could also be transferred to legal entities called special-purpose vehicles (SPVs). These vehicles in certain respects were like a bank, with the crucial difference that they were not subject to regulation. Moving risks to these SPVs was possible due to loopholes in the existing regulatory framework.

Following the collapse of Ice landic banks, a number of local authorities and universities in the United Kingdom, together with many pensioners and other individuals, lost a significant share of their savings and investments. In order to remain competitive with the U.S. financial market, the European economies felt compelled to create matching opportunities for investors and similarly succumbed to deregulatory pressures. Often lobbied by bankers, politicians sought to safeguard financial services in London, Frankfurt, Singapore, and other financial nexuses. This led to a commitment to light-touch regulation and the use of overly expansionary monetary policy.37 Policy makers were taken by arguments that the future of their financial capitals and a significant share of their tax revenues required a reduction in regulatory burdens and red tape.38 They argued that regulation would constrain the innovation needed to support further economic growth and stability.39 Above all, politicians and regulators drew comfort from the economists’ consensus of “the Great Moderation,” which argued that the U.S. economy had exhibited low volatility since the 1990s and that there were no hidden risks building in the system as a result of their actions.40 The implications of national deregulation and an integrated market led to a global financial network that Andrew Haldane from the Bank of England has described as a “monoculture.”41 In the United Kingdom, the financial and insurance sector grew 108 percent between 2000 and 2011, vastly outpacing all other sectors.42 By 2011 financial and insurance services contributed over £125 billion annually to the U.K. economy and were responsible for 9.4 percent of total value added.43 As securitization of subprime mortgages increased, the government became increasingly beholden to what was becoming a homogeneous source of employment and tax revenue.


pages: 387 words: 120,155

Inside the Nudge Unit: How Small Changes Can Make a Big Difference by David Halpern

Affordable Care Act / Obamacare, availability heuristic, carbon footprint, Cass Sunstein, centre right, choice architecture, cognitive dissonance, collaborative consumption, correlation does not imply causation, Daniel Kahneman / Amos Tversky, different worldview, endowment effect, happiness index / gross national happiness, hedonic treadmill, hindsight bias, IKEA effect, illegal immigration, job satisfaction, Kickstarter, libertarian paternalism, light touch regulation, longitudinal study, market design, meta analysis, meta-analysis, Milgram experiment, nudge unit, peer-to-peer lending, pension reform, presumed consent, QR code, quantitative easing, randomized controlled trial, Richard Thaler, Right to Buy, Ronald Reagan, Rory Sutherland, Simon Kuznets, skunkworks, the built environment, theory of mind, traffic fines, twin studies, World Values Survey

The argument also wasn’t helped by big tobacco companies, who moved from being bemused and slightly hostile observers, to becoming actively interested in the products and even, it was rumoured, buying up some of the e-cig companies. Furthermore, the slightly dubious behaviour of some e-cig companies in some countries, with rumours that they were being sold outside schools, didn’t help their cause much either. By the time the proposals came back from the MHRA, they didn’t look quite like the light-touch regulation we had in mind. The issue was also becoming a European matter, with many countries arguing for a ban, or at least very heavy regulation. Faced with the backlash in the public health sector, one of the UK’s largest retailers withdrew e-cigs from its shelves. Despite our early efforts, we were losing the battle. We were heading towards heavy restriction of e-cigs in Europe, where they might only be available from pharmacies, and possibly only on prescription.

But the evidence still suggested that this was still better than just smoking, and more importantly, the rising quit rate strongly suggested that the overall effect was positive. We took the evidence back to the PM and the Cabinet Secretary. As it happens, David Cameron was one of the only people in No. 10 who had been a smoker, and had once even tried an e-cig (he wasn’t especially impressed). We took the decision to stick to our line: to ensure that, for now at least, e-cigs should be widely available; to push for light-touch regulation to ensure that they were free of other toxins but had enough nicotine to satisfy smokers’ cravings; and to legislate to ensure that they were not to be sold to under-18s. Available, but safe, was to be our line. Based on behavioural and other evidence, and with the help of a new Public Health Minister and our European and Global Issues Secretariat (EGIS), this is the line we took and pushed and more or less secured in the UK and Europe.


pages: 393 words: 115,263

Planet Ponzi by Mitch Feierstein

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

We may not get the lost output back for very many years, if ever.’2 It’s also inevitably true that the cost of fiscal austerity falls far more on the poor than on the rich.3 Mervyn King’s ‘lost output’ will be causing pain in Tottenham and Toxteth for years and probably decades after those in Chelsea and Cheltenham have forgotten about it. Because these things are now well known, I won’t labor the point further. What I would add, however, is that the problems of lobbying are as entrenched in the UK as they are in the US‌—‌arguably more so. The Labour Party of Tony Blair and Gordon Brown was notoriously banker-friendly. The ‘light touch regulation’ on which those politicians prided themselves ended up doing unspeakable damage to the national finances. Yet the contemporary Conservative Party is more or less owned by the finance industry. According to the Bureau of Investigative Journalism, the financial sector is the source of more than half the Tory party’s political funding. If anything, that ratio has been increasing. Unsurprisingly, and according to the same source, the Tory-led coalition’s first year in office has seen a slew of tax changes all intended to help the most prosperous individuals in society.4 This shouldn’t come as any surprise.

For thirty years, and through administrations of both political colors, politicians allowed Ponzi-ish thinking to creep into every aspect of British economic life. Government debt stayed stubbornly high, when it should have all but disappeared. Household debt became excessive. Property became (and still is) bubblicious. The City of London came to rival Wall Street as a manufacturing center for financial WMDs. The regulators actively boasted of their ‘light touch’ regulation. That thirty-year road has now come to an end. Politics and the economy are in clear-up mode, much like London after the riots. There’s broken glass everywhere‌—‌broken glass and shattered businesses. But the clear-up is, in a strange way, inspirational. Tough political decisions can be made. Politicians can be honest. Voters can be trusted to understand what has to be done. The lobbying power of the banking industry can be kept at bay.


pages: 457 words: 125,329

Value of Everything: An Antidote to Chaos The by Mariana Mazzucato

"Robert Solow", activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Airbnb, bank run, banks create money, Basel III, Berlin Wall, Big bang: deregulation of the City of London, bonus culture, Bretton Woods, business cycle, butterfly effect, buy and hold, Buy land – they’re not making it any more, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, cleantech, Corn Laws, corporate governance, corporate social responsibility, creative destruction, Credit Default Swap, David Ricardo: comparative advantage, debt deflation, European colonialism, fear of failure, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, full employment, G4S, George Akerlof, Google Hangouts, Growth in a Time of Debt, high net worth, Hyman Minsky, income inequality, index fund, informal economy, interest rate derivative, Internet of things, invisible hand, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labour market flexibility, laissez-faire capitalism, light touch regulation, liquidity trap, London Interbank Offered Rate, margin call, Mark Zuckerberg, market bubble, means of production, money market fund, negative equity, Network effects, new economy, Northern Rock, obamacare, offshore financial centre, Pareto efficiency, patent troll, Paul Samuelson, peer-to-peer lending, Peter Thiel, profit maximization, quantitative easing, quantitative trading / quantitative finance, QWERTY keyboard, rent control, rent-seeking, Sand Hill Road, shareholder value, sharing economy, short selling, Silicon Valley, Simon Kuznets, smart meter, Social Responsibility of Business Is to Increase Its Profits, software patent, stem cell, Steve Jobs, The Great Moderation, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, too big to fail, trade route, transaction costs, two-sided market, very high income, Vilfredo Pareto, wealth creators, Works Progress Administration, zero-sum game

The rules reflected policymakers' consensus that financial institutions acted at best like a lubricant for the ‘real' motors of the economy - agriculture, manufacturing and business services - and were not significantly productive in themselves. It was feared that a deregulated financial sector could become excessively speculative, causing disruption domestically and to the external value of currencies. But in the 1960s, as the idea of ‘light-touch' regulation became increasingly attractive, such measures were increasingly viewed on both sides of the Atlantic as an obstacle to circumvent. During this time, banks never ceased to lobby against the regulations that deprived them of significant markets, and others (like the Glass-Steagall Act) which restricted their scope to combine operations in different markets. As well as pushing for an end to regulations, banks proved adept at persuading politicians that restrictive regulations were unworkable, by finding ways to work around them.

The cause of many of the corporate scandals of recent years, the standard argument goes, is the failure of these gatekeepers to do their job. Rather than being critical observers of companies, equity analysts have become their cheerleaders, and largely failed to see that banks were heading for the rocks. Independent auditors and rating agencies became business partners of the companies they oversaw instead of guarding the interests of investors and the wider community. Governments moved to ‘light-touch' regulation of finance, often under pressure from the industry lobby. The media were slow to spot the scandals and uncover them. Corporate directors - who, let's not forget, in the UK have a legal responsibility to act in the best interests of shareholders - were only a limited counterweight to managerial over-reach.17 There is no doubt that the incentive to generate fees - from advising, analysing and auditing companies, for example -resulted in collusion and conflicts of interest between the gatekeepers and the public corporations that led to failures of governance.


pages: 387 words: 119,244

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

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

‘The Three Amigos’, Fortis boss Jean-Paul Votron, Fred Goodwin and Emilio Botin of Santander announce their disastrous three way bid for Dutch bank ABN Amro. 17. Accountant John Connolly. The Deloitte boss was a mentor to Goodwin. The firm he ran signed off on RBS’s accounts as it headed for disaster. 18. The regulators: (top left) John Tiner, the chief executive of the Financial Services Authority (FSA) from 2003 to 2007, an advocate of ‘principles based’ light touch regulation of the banks. (top right) Investment banker Hector Sants, who succeeded Tiner and tried to overhaul the organisation, but let RBS run its capital low when it was taking over ABN Amro in the autum of 2007. (Bottom left) Sir Callum McCarthy, civil servant, banker, chairman of the FSA from 2003 and keeper of bees. (Bottom right) Lord Turner, who followed as chairman of the FSA in September 2008 just as the Royal Bank and the financial system were about to blow up. 19.

‘The Three Amigos’, Fortis boss Jean-Paul Votron, Fred Goodwin and Emilio Botin of Santander announce their disastrous three way bid for Dutch bank ABN Amro. 17. Accountant John Connolly. The Deloitte boss was a mentor to Goodwin. The firm he ran signed off on RBS’s accounts as it headed for disaster. 18. The regulators: (top left) John Tiner, the chief executive of the Financial Services Authority (FSA) from 2003 to 2007, an advocate of ‘principles based’ light touch regulation of the banks. (top right) Investment banker Hector Sants, who succeeded Tiner and tried to overhaul the organisation, but let RBS run its capital low when it was taking over ABN Amro in the autum of 2007. (Bottom left) Sir Callum McCarthy, civil servant, banker, chairman of the FSA from 2003 and keeper of bees. (Bottom right) Lord Turner, who followed as chairman of the FSA in September 2008 just as the Royal Bank and the financial system were about to blow up. 19.


pages: 481 words: 120,693

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

activist fund / activist shareholder / activist investor, Albert Einstein, algorithmic trading, assortative mating, banking crisis, barriers to entry, Basel III, battle of ideas, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Boris Johnson, Branko Milanovic, Bretton Woods, BRICs, business climate, call centre, carried interest, Cass Sunstein, Clayton Christensen, collapse of Lehman Brothers, commoditize, conceptual framework, corporate governance, creative destruction, credit crunch, Credit Default Swap, crony capitalism, Deng Xiaoping, disruptive innovation, don't be evil, double helix, energy security, estate planning, experimental subject, financial deregulation, financial innovation, Flash crash, Frank Gehry, Gini coefficient, global village, Goldman Sachs: Vampire Squid, Gordon Gekko, Guggenheim Bilbao, haute couture, high net worth, income inequality, invention of the steam engine, job automation, John Markoff, joint-stock company, Joseph Schumpeter, knowledge economy, knowledge worker, liberation theology, light touch regulation, linear programming, London Whale, low skilled workers, manufacturing employment, Mark Zuckerberg, Martin Wolf, Mikhail Gorbachev, Moneyball by Michael Lewis explains big data, NetJets, new economy, Occupy movement, open economy, Peter Thiel, place-making, plutocrats, Plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, postindustrial economy, Potemkin village, profit motive, purchasing power parity, race to the bottom, rent-seeking, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, self-driving car, short selling, Silicon Valley, Silicon Valley startup, Simon Kuznets, Solar eclipse in 1919, sovereign wealth fund, starchitect, stem cell, Steve Jobs, the new new thing, The Spirit Level, The Wealth of Nations by Adam Smith, Tony Hsieh, too big to fail, trade route, trickle-down economics, Tyler Cowen: Great Stagnation, wage slave, Washington Consensus, winner-take-all economy, zero-sum game

Thanks to this mind-set, Martin and his team had the self-confidence to opt out of what became the international contest to create the most attractive haven for global capital. Canada raised its capital requirements as they were lowered in other parts of the world. “I think one of the things that happened was the great competition between New York and London pushed the two into more of a light touch in terms of regulation,” Martin recalled. “I remember talking to [the regulator] and we agreed that we were not prepared to take that approach. Light-touch regulation in an industry that was so dependent on liquidity didn’t make any sense.” One Bay Street financier summed it up more saltily: “Canadian regulators didn’t have penis envy.” With hindsight, that decision seems brilliant. At the time, though, to many it seemed, well, limp. One measure of how strongly the tide of world opinion was running against the Canucks is that the International Monetary Fund, meant to be the stern guardian of the global economy, chided Canada for not doing enough to promote securitization in its mortgage market—one of the American financial innovations that contributed to the crisis.

This cultural Serrata matters because it increases the political myopia of the plutocrats. Add to that ordinary greed and a society that has turned its capitalists into popular heroes and you have an economic elite primed to repeat the mistake of the Venetian merchants—to drink its own Kool-Aid (or maybe prosecco is the better metaphor) and to conflate its own self-interest with the interests of society as a whole. Low taxes, light-touch regulation, weak unions, and unlimited campaign donations are certainly in the best interests of the plutocrats, but that doesn’t mean they are the right way to maintain the economic system that created today’s super-elite. Elites don’t sabotage the system that created them on purpose. But even smart, farsighted plutocrats can be betrayed by their own short-term self-interest into undermining the foundations of their own society’s prosperity.


pages: 414 words: 121,243

What's Left?: How Liberals Lost Their Way by Nick Cohen

anti-communist, Ayatollah Khomeini, Berlin Wall, Boycotts of Israel, British Empire, centre right, Etonian, failed state, Fall of the Berlin Wall, Farzad Bazoft, feminist movement, haute couture, kremlinology, liberal world order, light touch regulation, mass immigration, moral hazard, Naomi Klein, plutocrats, Plutocrats, post-industrial society, profit motive, Ralph Nader, road to serfdom, Ronald Reagan, Scientific racism, sensible shoes, the scientific method, union organizing, upwardly mobile, Yom Kippur War

And it ends at the juncture where even in the transgressive, liberated West, where so much blood had been spilt for Freedom, where rebellion is the conformist style and playing the dissenter the smart career move in the arts and media, you can write a book and end up destroyed or dead. Buy the ebook here BY THE SUMMER of 2007, Britain was close to crashing. A few onlookers realised the danger, but Britain's political leaders were not among them. Politicians and civil servants boasted that the City's economy was booming because of their 'light-touch regulation' of workers in financial services whose number included potential frauds. Curiously, they never argued that the inner-city economy might boom if there was 'light touch regulation' of workers in the ghettos whose number included potential drug dealers. And artists produced works to match the times. On the same day that Lehman Brothers went bankrupt, the genial Damien Hirst auctioned at Sotheby's pieces he admitted had been mass produced in his studios and buyers still gave him £100 million.


pages: 767 words: 208,933

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

activist fund / activist shareholder / activist investor, affirmative action, anti-communist, Asian financial crisis, bank run, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business climate, business cycle, capital controls, centre right, Chelsea Manning, collective bargaining, Columbine, Corn Laws, corporate governance, corporate social responsibility, creative destruction, credit crunch, David Ricardo: comparative advantage, debt deflation, desegregation, disruptive innovation, Donald Trump, Edward Snowden, failed state, Fall of the Berlin Wall, financial deregulation, financial innovation, Francis Fukuyama: the end of history, full employment, Gini coefficient, global supply chain, hiring and firing, imperial preference, income inequality, interest rate derivative, invisible hand, John von Neumann, Joseph Schumpeter, Julian Assange, Khartoum Gordon, land reform, liberal capitalism, liberal world order, light touch regulation, Long Term Capital Management, market bubble, Martin Wolf, means of production, Mikhail Gorbachev, Monroe Doctrine, Mont Pelerin Society, moral hazard, Naomi Klein, new economy, New Journalism, Norman Macrae, Northern Rock, Occupy movement, Philip Mirowski, plutocrats, Plutocrats, price stability, quantitative easing, race to the bottom, railway mania, rent control, rent-seeking, road to serfdom, Ronald Reagan, Rosa Parks, Snapchat, Socratic dialogue, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, trade liberalization, trade route, unbanked and underbanked, underbanked, unorthodox policies, upwardly mobile, War on Poverty, WikiLeaks, Winter of Discontent, Yom Kippur War, young professional

Long on the Labour right – he had started out as an advisor to Anthony Crosland and James Callaghan, before turning to journalism in 1979 – the Bagehot columnist was so ‘carried away with excitement as Tony Blair threw away the baggage of Old Labour, as I had been urging’ that he ‘surreptitiously rejoined’ the party.34 As the Blair-Brown duumvirate pushed neoliberalism further than Thatcher had dared, in particular in the City – devising new ‘light-touch’ regulations, slashing capital gains from 40 to 10 per cent on long-term assets, granting the Bank of England full independence to set rates – Emmott backtracked. ‘Tiresome as third-way nonsense is to curmudgeons such as The Economist, its success as a marketing device is not in doubt.’ Downing Street spin-doctors, ‘reconciling Britain to the Thatcher revolution, consolidating it, extending it’ meant ‘voters are happy, leading-thinkers are happy, everyone except the bewildered souls who believed in Old Labour are happy.’35 Never a favourite, always shown grinning dementedly for no reason, in 2001 and 2005 Blair got the Economist’s blessing: superimposing his smiling face onto Thatcher’s head – lipstick, earrings, coiffure – it advised readers, ‘Vote conservative’.36 Pushing Buttons Abroad Each tartly-worded leader and irreverent cover raised the circulation of the Economist, as well as its profile as intellectual maverick – above all in the US, where social issues became an index of its liberalism as such.

The loosening of what restrictions there were on finance capital came gradually in the post-war years, through the pooling of offshore Eurodollars in London from the late 1950s, then in a rush with the collapse of Bretton Woods in the early 1970s and finally with a Big Bang in 1986 – hailed by Pennant-Rea as a shot in the arm for financial services, before he left for the Bank of England in 1993. Under Emmott and Micklethwait, the neoliberal drive for the insulation, light regulation, privatization and globalization of markets, reached its apogee – culminating in the crash of 2008, and the editors’ breathtakingly unrepentant response to it. A long way from the wishful images of popular parlance in Europe or philosophical discourse in America, this is the record of actually existing liberalism, at its most powerful. Averting their gaze, liberals have scratched their heads at the political volatility of the present, unable to recognize their handiwork.


pages: 920 words: 233,102

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

Andrei Shleifer, bank run, banking crisis, barriers to entry, Basel III, battle of ideas, Ben Bernanke: helicopter money, Berlin Wall, Bretton Woods, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, conceptual framework, corporate governance, diversified portfolio, 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, 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, means of production, money market fund, Mont Pelerin Society, moral hazard, Northern Rock, Pareto efficiency, Paul Samuelson, price mechanism, price stability, principal–agent problem, profit maximization, quantitative easing, regulatory arbitrage, reserve currency, 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, 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

More generally, see Quintyn, “Independent Agencies.” 17 Khademian, Politics of Expertise. 18 Financial Services and Markets Act, as amended in 2012. The objectives of the old FSA, which was also the prudential supervisor of banks, were market confidence, public awareness, consumer protection, and reducing financial crime. It also had to have regard to the competitiveness of UK financial services, which some believe gave politicians a lever in pressing for “light touch” regulation. Safety and soundness were not mentioned. 19 While deputy governor, I was ex officio a nonexecutive director of the FSA. The board was not involved in individual cases. 20 On congressional influence over SEC policy through incremental legislation, see Weingast, “Congressional-Bureaucratic System,” which reviews how liberalization of equity-market trading platforms depended on Congress.

The UK’s new Prudential Regulation Authority has around thirty such factors to weigh somehow, the Financial Conduct Authority around fifty.24 Absent case law, agency leaders and legal counsel have to decide, implicitly or explicitly, what this amounts to: are they subordinate objectives, nonbinding constraints, or what? Whatever turns out to be the correct legal construction, they can certainly make a difference.25 The old FSA was required by its mid-1990s statute to have regard to the competitiveness of the financial services industry, a harbinger for the “light-touch” regulation that was part of London’s contribution to the financial crisis a decade later. As David Currie, drawing on extensive experience of chairing UK-IA oversight boards, has commented:26 The tradition in UK regulation has been to postulate a range of duties (and ‘have regard to’s) and to place on the regulator the onus of balancing those duties. In my experience, there is considerable advantage in having a clear primary duty, such as the Ofcom one, sitting above these.

Regulatory Mandates That Independent Central Banks Should Not Be Given Further, following the Principles and our definition of monetary-system stability, central banks should not be responsible for competition policy, which would make them more powerful than they need to be, and therefore too powerful; the structure of the financial services industry, as it involves high-level trade-offs between efficiency and resilience; its external competitiveness, as that invites political pressure to relax resilience standards and adopt “light-touch regulation”; sponsoring the industry’s interests in government or in society, which would be liable to lead to capture by sectoral interests and so to lower resilience than desired; consumer protection, which would confuse the public about the nature of a broader “stability” mandate, as well as taking most central bankers beyond their comfort zone and vocational drive; and market regulation, as it unavoidably incorporates consumer protection and, separately, would make central banks too powerful (the Fed plus SEC!).


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

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

First, though, we had to deal with AIG, which was even bigger and more dangerous than Lehman, and was threatening to burn down what was left of the system. AIG: FREE MARKET DAY Like Lehman, the global insurer AIG had fallen through the cracks of our broken regulatory system. Its insurance subsidiaries were regulated at the state level, while the Office of Thrift Supervision, the light-touch regulator of choice for institutions like Countrywide, IndyMac, and WaMu, purported to oversee its holding company. None of us had visibility into AIG, and none of us had paid close attention to the firm until it started to hemorrhage late that summer. But the more we learned about the company, the more we realized that letting it follow Lehman’s path would be a recipe for a depression. AIG insured the lives, health, property, vehicles, and retirement accounts of 76 million customers, including 180,000 businesses that employed more than two thirds of the American workforce.


pages: 726 words: 172,988

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

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

An anti-regulation ideology helped as well.49 Prior to the financial crisis, regulators failed to set proper rules and supervisors failed to enforce the rules in place so as to prevent the reckless behavior of bankers.50 In the United States, for example, Alan Greenspan (chairman of the Federal Reserve), Arthur Levitt (chairman of the Securities and Exchange Commission [SEC]), and Robert Rubin (Treasury secretary) prevented an initiative in 1998–2000 that would have imposed more transparency on derivatives markets. Such transparency was sorely missing in the run-up to the financial crisis.51 A 2004 ruling of the SEC allowed U.S. investment banks to determine their regulatory capital on the basis of their own risk assessments, and this enabled Lehman Brothers and other investment banks to become highly indebted and vulnerable.52 The United Kingdom also insti-tuted so-called light-touch regulation in order to expand its role as a major financial center.53 An important factor in explaining the financial crisis of 2007–2009 is the failure of regulators and supervisors in the United States and in Europe to set and enforce proper rules to prevent the reckless behavior of bankers.54 Supervisors in the United States and Europe allowed banks to circumvent capital requirements by creating various entities that did not appear on the banks’ balance sheets.

., 309n50, 335n46 Levitt, Arthur, 204 Lewis, Michael, 60, 240n4, 253n38, 253n42, 259n29, 259n34, 261n51, 262n53, 282n14, 285n37, 290n27, 297n33, 300n49, 320n17, 329n6, 329n8, 331n20 liabilities, in balance sheets, 48, 48f, 248n4 liability: for covered bonds versus mortgage-backed securities, 254n48; extended, 31; limited, 25–26, 30–31, 240n10; unlimited, 30–31, 153 LIBOR (London interbank offered rate): definition of, 208, 256n13, 328n2; in financial crisis of 2007–2009, 256n13; scandal involving manipulation of, 208, 209, 215, 276n5, 328n2, 328n4 light-touch regulation, in UK, 204 Liikanen Commission, 90, 270nn34–35 limited-liability businesses, 25–26; banks as, 30–31; versus extended liability, 31; forms of, 240n10; rise of, 30; versus unlimited liability, 30–31. See also corporation(s) Lincoln Savings and Loan Association, 252n35 liquid assets, definition of, 295n24; in liquidity regulations, 92–93, 272nn44–45 liquidation(s): versus bankruptcy, 37; as normal in market economies, 38 liquidity: central banks’ role in, 39–40, 63, 179, 256n13; creation of, by banks, 154, 295n23; definition of, 250n17; “need” for, 153–58; in plumbing metaphor, 210; transformation of, by banks, 155–56, 158–59, 250n17, 296n31 liquidity coverage ratio, 92–93 liquidity problems (illiquidity), 38–40; approaches to controlling, 92–94; in bank runs, 52, 93; capital regulation’s impact on, 95; central banks’ support in, 39–40, 63, 179, 256n13; contagion mechanisms in, 63; definition of, 38; in financial crisis of 2007-2009, 40, 209–12, 238n46, 246n15; guarantees and, 93–94; in maturity transformation, 159; money creation and, 158; in money market fund runs, 63; of mortgage-related securities, 156–57, 297n34; narrative of, 209–12, 330nn12–13, 330n18; pure (temporary), 32, 38–39; reserve requirements and, 92, 272n41, 272n43; safety nets for, 39–40, 93, 210–11; versus solvency problems, dangers of, 93, 152 liquidity transformation, 155–56, 158–59, 250n17, 296n31 living wills, for financial institutions, 77, 263n65 loans.


pages: 257 words: 71,686

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

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

We never forget. We’re very powerful, though we can be somewhat clumsy. We’re not predators but, when you hear us coming, you pay attention … I suppose the elephants.’ The regulators attract very bright people from the top universities, he insisted, referring to the trader’s ‘idiots’ comment. What’s more, he continued: ‘Banks have been so wrong about their risks. There was a clamour for light-touch regulation, to leave the industry in peace, because they knew best. People blame the regulators for missing all sorts of things in years past, and there were regulatory failures. But the senior management and risk people inside the banks should have caught them in the first place. Then again, those risk officers who did issue warnings in those years may have been let go.’ Since the crash, the regulators were ‘losing people at all levels’, he said.


pages: 515 words: 142,354

The Euro: How a Common Currency Threatens the Future of Europe by Joseph E. Stiglitz, Alex Hyde-White

bank run, banking crisis, barriers to entry, battle of ideas, Berlin Wall, Bretton Woods, business cycle, buy and hold, capital controls, Carmen Reinhart, cashless society, central bank independence, centre right, cognitive dissonance, collapse of Lehman Brothers, collective bargaining, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, currency peg, dark matter, David Ricardo: comparative advantage, disintermediation, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial innovation, full employment, George Akerlof, Gini coefficient, global supply chain, Growth in a Time of Debt, housing crisis, income inequality, incomplete markets, inflation targeting, information asymmetry, investor state dispute settlement, invisible hand, Kenneth Arrow, Kenneth Rogoff, knowledge economy, light touch regulation, manufacturing employment, market bubble, market friction, market fundamentalism, Martin Wolf, Mexican peso crisis / tequila crisis, money market fund, moral hazard, mortgage debt, neoliberal agenda, new economy, open economy, paradox of thrift, pension reform, pensions crisis, price stability, profit maximization, purchasing power parity, quantitative easing, race to the bottom, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, Silicon Valley, sovereign wealth fund, the payments system, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transfer pricing, trickle-down economics, Washington Consensus, working-age population

Indeed, especially before the 2008 global financial crisis, each country faced pressures to reduce regulations. Financial firms threatened that they would leave unless regulations were reduced.14 This regulatory race to the bottom would have existed within Europe even without the euro. Indeed, the winners in the pre-2008 contest were Iceland and the UK, neither of which belong to the eurozone (and Iceland doesn’t even belong to the EU). The UK prided itself on its system of light regulation, which meant essentially self-regulation, an oxymoron. The bank managers put their own interests over those of shareholders and bondholders, and the banks as institutions put their interests over those of their clients. The UK’s Barclays bank confessed to having manipulated the market for LIBOR, the London interbank lending rate upon which some $350 trillion of derivatives and other financial products are based.15 Still, the eurozone was designed with the potential to make all of this worse.

Somehow, the banks’ money makes their arguments seem more cogent, in spite of the historical record showing the adverse consequences of underregulated banks—up to and including the 2008 crisis.18 This political influence on regulatory reform in Europe and the United States has meant that the reforms have almost surely not been sufficient to prevent another crisis; in certain areas, such as the shadow banking system, there has been little progress, and in other areas, such as derivatives, what progress there has been has been significantly reversed, at least in the United States.19 Fixing the problem The threat of a regulatory race to the bottom is why there has to be strong regulation at the European level. But under Europe’s current governance structure, this will prove even more difficult than getting good regulation within a country. The UK has been vigorously defending its system of light regulation. It may have cost its taxpayers hundreds of billions of pounds, yet today policymakers focus on the potential loss of profits, taxes, and jobs from downsizing (or rightsizing) the financial sector. The losses of a few years ago seem ancient history, not to be mentioned in any polite conversation of regulatory reform. There is a second problem with Europe-wide financial regulation and supervision—can it be sufficiently sensitive to the circumstances of the different countries?

., 393 in US, 35, 36, 88, 89–92 see also euro single-market principle, 125–26, 231 skilled workers, 134–35 skills, 77 Slovakia, 331 Slovenia, 331 small and medium-sized enterprises (SMEs), 127, 138, 171, 229 small and medium-size lending facility, 246–47, 300, 301, 382 Small Business Administration, 246 small businesses, 153 Smith, Adam, xviii, 24, 39–40, 41 social cohesion, 22 Social Democratic Party, Portugal, 392 social program, 196 Social Security, 90, 91 social solidarity, xix societal capital, 77–78 solar energy, 193, 229 solidarity fund, 373 solidarity fund for stabilization, 244, 254, 264, 301 Soros, George, 390 South Dakota, 90, 346 South Korea, 55 bailout of, 113 sovereign risk, 14, 353 sovereign spreads, 200 sovereign wealth funds, 258 Soviet Union, 10 Spain, 14, 16, 114, 177, 178, 278, 331, 335, 343 austerity opposed by, 59, 207–8, 315 bank bailout of, 179, 199–200, 206 banks in, 23, 186, 199, 200, 242, 270, 354 debt of, 196 debt-to-GDP ratio of, 231 deficits of, 109 economic growth in, 215, 231, 247 gold supply in, 277 independence movement in, xi inequality in, 72, 212, 225–26 inherited debt in, 134 labor reforms proposed for, 155 loans in, 127 low debt in, 87 poverty in, 261 real estate bubble in, 25, 108, 109, 114–15, 126, 198, 301, 302 regional independence demanded in, 307 renewable energy in, 229 sovereign spread of, 200 spread in, 332 structural reform in, 70 surplus in, 17, 88 threat of breakup of, 270 trade deficits in, 81, 119 unemployment in, 63, 161, 231, 235, 332, 338 Spanish bonds, 114, 199, 200 spending, cutting, 196–98 spread, 332 stability, 147, 172, 261, 301, 364 automatic, 244 bubble and, 264 central banks and, 8 as collective action problem, 246 solidarity fund for, 54, 244, 264 Stability and Growth Pact, 245 standard models, 211–13 state development banks, 138 steel companies, 55 stock market, 151 stock market bubble, 200–201 stock market crash (1929), 18, 95 stock options, 259, 359 structural deficit, 245 Structural Funds, 243 structural impediments, 215 structural realignment, 252–56 structural reforms, 9, 18, 19–20, 26–27, 214–36, 239–71, 307 from austerity to growth, 263–65 banking union, 241–44 and climate change, 229–30 common framework for stability, 244–52 counterproductive, 222–23 debt restructuring and, 265–67 of finance, 228–29 full employment and growth, 256–57 in Greece, 20, 70, 188, 191, 214–36 growth and, 232–35 shared prosperity and, 260–61 and structural realignment, 252–56 of trade deficits, 216–17 trauma of, 224 as trivial, 214–15, 217–20, 233 subsidiarity, 8, 41–42, 263 subsidies: agricultural, 45, 197 energy, 197 sudden stops, 111 Suharto, 314 suicide, 82, 344 Supplemental Nutrition Assistance Program (SNAP), 91 supply-side effects: in Greece, 191, 215–16 of investments, 367 surpluses, fiscal, 17, 96, 312, 379 primary, 187–88 surpluses, trade, see trade surpluses “Swabian housewife,” 186, 245 Sweden, 12, 46, 307, 313, 331, 335, 339 euro referendum of, 58 refugees into, 320 Switzerland, 44, 307 Syria, 321, 342 Syriza party, 309, 311, 312–13, 315, 377 Taiwan, 55 tariffs, 40 tax avoiders, 74, 142–43, 227–28, 261 taxes, 142, 290, 315 in Canada, 191 on capital, 356 on carbon, 230, 260, 265, 368 consumption, 193–94 corporate, 189–90, 227, 251 cross-border, 319, 384 and distortions, 191 in EU, 8, 261 and fiat currency, 284 and free mobility of goods and capital, 260–61 in Greece, 16, 142, 192, 193–94, 227, 367–68 ideal system for, 191 IMF’s warning about high, 190 income, 45 increase in, 190–94 inequality and, 191 inheritance, 368 land, 191 on luxury cars, 265 progressive, 248 property, 192–93, 227 Reagan cuts to, 168, 210 shipping, 227, 228 as stimulative, 368 on trade surpluses, 254 value-added, 190, 192 tax evasion, in Greece, 190–91 tax laws, 75 tax revenue, 190–96 Taylor, John, 169 Taylor rule, 169 tech bubble, 250 technology, 137, 138–39, 186, 211, 217, 251, 258, 265, 300 and new financial system, 274–76, 283–84 telecoms, 55 Telmex, 369 terrorism, 319 Thailand, 113 theory of the second best, 27–28, 48 “there is no alternative” (TINA), 306, 311–12 Tocqueville, Alexis de, xiii too-big-to-fail banks, 360 tourism, 192, 286 trade: and contractionary expansion, 209 US push for, 323 trade agreements, xiv–xvi, 357 trade balance, 81, 93, 100, 109 as allegedly self-correcting, 98–99, 101–3 and wage flexibility, 104–5 trade barriers, 40 trade deficits, 89, 139 aggregate demand weakened by, 111 chit solution to, 287–88, 290, 299–300, 387, 388–89 control of, 109–10, 122 with currency pegs, 110 and fixed exchange rates, 107–8, 118 and government spending, 107–8, 108 of Greece, 81, 194, 215–16, 222, 285–86 structural reform of, 216–17 traded goods, 102, 103, 216 trade integration, 393 trade surpluses, 88, 118–21, 139–40, 350–52 discouragement of, 282–84, 299–300 of Germany, 118–19, 120, 139, 253, 293, 299, 350–52, 381–82, 391 tax on, 254, 351, 381–82 Transatlantic Trade and Investment Partnership, xv, 323 transfer price system, 376 Trans-Pacific Partnership, xv, 323 Treasury bills, US, 204 Trichet, Jean-Claude, 100–101, 155, 156, 164–65, 251 trickle-down economics, 362 Troika, 19, 20, 26, 55, 56, 58, 60, 69, 99, 101–3, 117, 119, 135, 140–42, 178, 179, 184, 195, 274, 294, 317, 362, 370–71, 373, 376, 377, 386 banks weakened by, 229 conditions of, 201 discretion of, 262 failure to learn, 312 Greek incomes lowered by, 80 Greek loan set up by, 202 inequality created by, 225–26 poor forecasting of, 307 predictions by, 249 primary surpluses and, 187–88 privatization avoided by, 194 programs of, 17–18, 21, 155–57, 179–80, 181, 182–83, 184–85, 187–93, 196, 197–98, 202, 204, 205, 207, 208, 214–16, 217, 218–23, 225–28, 229, 231, 233–34, 273, 278, 308, 309–11, 312, 313, 314, 315–16, 323–24, 348, 366, 379, 392 social contract torn up by, 78 structural reforms imposed by, 214–16, 217, 218–23, 225–38 tax demand of, 192 and tax evasion, 367 see also European Central Bank (ECB); European Commission; International Monetary Fund (IMF) trust, xix, 280 Tsipras, Alexis, 61–62, 221, 273, 314 Turkey, 321 UBS, 355 Ukraine, 36 unemployment, 3, 64, 68, 71–72, 110, 111, 122, 323, 336, 342 as allegedly self-correcting, 98–101 in Argentina, 267 austerity and, 209 central banks and, 8, 94, 97, 106, 147 ECB and, 163 in eurozone, 71, 135, 163, 177–78, 181, 331 and financing investments, 186 in Finland, 296 and future income, 77 in Greece, xi, 71, 236, 267, 331, 338, 342 increased by capital, 264 interest rates and, 43–44 and internal devaluation, 98–101, 104–6 migration and, 69, 90, 135, 140 natural rate of, 172–73 present-day, in Europe, 210 and rise of Hitler, 338, 358 and single currency, 88 in Spain, 63, 161, 231, 235, 332, 338 and structural reforms, 19 and trade deficits, 108 in US, 3 youth, 3, 64, 71 unemployment insurance, 91, 186, 246, 247–48 UNICEF, 72–73 unions, 101, 254, 335 United Kingdom, 14, 44, 46, 131, 307, 331, 332, 340 colonies of, 36 debt of, 202 inflation target set in, 157 in Iraq War, 37 light regulations in, 131 proposed exit from EU by, 4, 270 United Nations, 337, 350, 384–85 creation of, 38 and lower rates of war, 196 United States: banking system in, 91 budget of, 8, 45 and Canada’s 1990 expansion, 209 Canada’s free trade with, 45–46, 47 central bank governance in, 161 debt-to-GDP of, 202, 210–11 financial crisis originating in, 65, 68, 79–80, 128, 296, 302 financial system in, 228 founding of, 319 GDP of, xiii Germany’s borrowing from, 187 growing working-age population of, 70 growth in, 68 housing bubble in, 108 immigration into, 320 migration in, 90, 136, 346 monetary policy in financial crisis of, 151 in NAFTA, xiv 1980–1981 recessions in, 76 predatory lending in, 310 productivity in, 71 recovery of, xiii, 12 rising inequality in, xvii, 333 shareholder capitalism of, 21 Small Business Administration in, 246 structural reforms needed in, 20 surpluses in, 96, 187 trade agenda of, 323 unemployment in, 3, 178 united currency in, 35, 36, 88, 89–92 United States bonds, 350 unskilled workers, 134–35 value-added tax, 190, 192 values, 57–58 Varoufakis, Yanis, 61, 221, 309 velocity of circulation, 167 Venezuela, 371 Versaille, Treaty of, 187 victim blaming, 9, 15–17, 177–78, 309–11 volatility: and capital market integration, 28 in exchange rates, 48–49 Volcker, Paul, 157, 168 wage adjustments, 100–101, 103, 104–5, 155, 216–17, 220–22, 338, 361 wages, 19, 348 expansionary policies on, 284–85 Germany’s constraining of, 41, 42–43 lowered in Germany, 105, 333 wage stagnation, in Germany, 13 war, change in attitude to, 38, 196 Washington Consensus, xvi Washington Mutual, 91 wealth, divergence in, 139–40 Weil, Jonathan, 360 welfare, 196 West Germany, 6 Whitney, Meredith, 360 wind energy, 193, 229 Wolf, Martin, 385 worker protection, 56 workers’ bargaining rights, 19, 221, 255 World Bank, xv, xvii, 10, 61, 337, 357, 371 World Trade Organization, xiv youth: future of, xx–xxi unemployment of, 3, 64, 71 Zapatero, José Luis Rodríguez, xiv, 155, 362 zero lower bound, 106 ALSO BY JOSEPH E.


pages: 322 words: 77,341

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

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

The institution carried the watermark of its origins, as institutions tend to do: it wasn’t proactive in its view of the industry and didn’t see itself as looking at the operation of the business from the outside. Regulatory bodies should have access to the perspective of outsiders looking in at the industry from its periphery and prepared to ask obvious, which sometimes means obviously unpopular, questions. The FSA wasn’t like that: it didn’t have somebody saying “I don’t understand, please explain.” It was dedicated to what was often called the principle of “light touch” regulation. As Adair Turner, the head of the FSA, said in his postcrash report: An underlying assumption of financial regulation in the US, the UK and across the world, has been that financial innovation is by definition beneficial, since market discipline will winnow out any unnecessary or value destructive innovations. As a result, regulators have not considered it their role to judge the value of different financial products, and they have in general avoided direct product regulation, certainly in wholesale markets with sophisticated investors.4 This didn’t mean that nobody at the FSA, the Bank, or the Treasury—the third pillar of the “tripartite” regulatory system supposed to run the British financial system—had a clue what was happening.


pages: 183 words: 17,571

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

banking crisis, banks create money, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, 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, corporate governance, corporate raider, creative destruction, credit crunch, crony capitalism, currency manipulation / currency intervention, disintermediation, eurozone crisis, fiat currency, financial innovation, financial repression, floating exchange rates, Fractional reserve banking, global reserve currency, global supply chain, Home mortgage interest deduction, index fund, information asymmetry, joint-stock company, Joseph Schumpeter, labor-force participation, light touch regulation, liquidity trap, London Interbank Offered Rate, market bubble, market clearing, Martin Wolf, means of production, mobile money, money market fund, moral hazard, mortgage debt, mortgage tax deduction, negative equity, Ponzi scheme, profit motive, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, rising living standards, Ronald Coase, seigniorage, shareholder value, Silicon Valley, 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

Governments of both the center-left and center-right embraced the financedriven economy because it delivered the goods in the form of economic growth and job creation.The so-called Anglo-Saxon economies with their dynamic capital markets and global investment banks outpaced other developed economies in Europe and Asia. Bill Clinton and Tony Blair both enjoyed long periods in office and in return delivered “light-touch” regulation to the bankers who were among their largest financial supporters. In Financial Market Meltdown (Praeger, 2009) I basically update the great Victorian banker and journalist Walter Bagehot, who wrote the great financial classic Lombard Street (1873), which tells the lay reader how finance works. I will not repeat myself here, but two points Bagehot insisted on remain true: First, banks need to be cautious and dull because they deal in other people’s money, and an optimistic and complacent banker is more dangerous than an outright fraudster.


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

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

Overnight, Thatcher cleared the way for retail banks to set up integrated investment banks that could make markets, advise clients, sell them securities and place their own side bets, all under one roof. She also removed obstacles to foreign banks taking over U.K. firms, leading to an influx of big U.S. and international lenders that brought with them a more aggressive, cutthroat ethos. The advent of light-touch regulation, with markets more or less left to police themselves, made London a highly attractive place to do business. The market for derivatives, bonds and syndicated loans exploded. Beware of Greeks Bearing Gifts 17 By the 1990s, Libor was baked into the system as the benchmark for everything from mortgages and student loans to swaps. However, it was its adoption by the Chicago Mercantile Exchange (CME) as the reference rate for eurodollar futures contracts that cemented its position at the heart of the financial markets.


pages: 267 words: 74,296

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

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

The move was co-ordinated and subject to EU state-aid rules, but each country would still have to clean up its own banking mess. The hyperactive Sarkozy then flew off to Camp David (taking along the president of the European Commission, José Manuel Barroso) to persuade President George Bush to call a global summit on the financial crisis (it would become the G20 summit). Under the Irish single-market commissioner, Charlie McCreevy, the Commission had hitherto favoured light-touch regulation of finance. But in October Barroso enlisted a former IMF boss and French central-bank governor, Jacques de Larosière, to produce a report on how to tighten control over the financial sector. It was delivered within three months. After much resistance from the UK, the report would lead to the creation in 2011 of four new European financial supervisory bodies: three new regulators for banks, insurance and markets, and the European Systemic Risk Board to monitor threats to the overall financial system.


pages: 286 words: 79,305

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

"Robert Solow", 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, additive manufacturing, Albert Einstein, anti-communist, autonomous vehicles, bank run, banks create money, bitcoin, business cycle, call centre, central bank independence, complexity theory, conceptual framework, creative destruction, credit crunch, declining real wages, distributed ledger, Donald Trump, Erik Brynjolfsson, eurozone crisis, fiat currency, Filter Bubble, full employment, future of work, Gini coefficient, gravity well, income inequality, inflation targeting, Internet of things, invisible hand, Jeff Bezos, jimmy wales, job automation, Kickstarter, labour market flexibility, laissez-faire capitalism, light touch regulation, Mark Zuckerberg, market clearing, market fundamentalism, Martin Wolf, money: store of value / unit of account / medium of exchange, Nelson Mandela, North Sea oil, Occupy movement, offshore financial centre, Own Your Own Home, Peter Thiel, Piper Alpha, plutocrats, Plutocrats, profit maximization, quantitative easing, rent-seeking, Ronald Reagan, Second Machine Age, self-driving car, Silicon Valley, smart cities, Steve Jobs, The Great Moderation, The Wealth of Nations by Adam Smith, wealth creators, working-age population

These were three of the key principles of Reaganomics, principles that brought our country over twenty years of economic growth and prosperity.’5 Market capitalism, therefore, has two main objectives: 1. to free-up the private sector 2. to shrink the role of the state True to these principles, since 1980 in both the US and the UK (as well as many other countries), the direction of policy has been to deregulate (reduce governmental control) wherever possible – and in particular to impose ‘light-touch’ regulation of financial services; to privatize wherever possible and to contract-out where full privatization is not possible; to reduce rates of income tax; to contain public spending; and to reduce the power of the union movement. In other words, the government has simply been trying to get out of the way – and get everyone else out of the way – of business. Yet the Age of Market Capitalism has been punctuated by crises, of which the most recent, and the most serious, was the Global Financial Crisis that began in 2007 and reached its crisis point in September 2008 when Lehman Brothers – the fourth-largest investment bank in the United States – collapsed.


pages: 309 words: 85,584

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

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

Two other points made to me repeatedly by Treasury officials over the years were: first, that decisions about whether to change interest rates tended to take up an inordinate amount of time; and, secondly, that the pursuit of sound policies was frequently thwarted on Budget Day by seeing their Chancellors, often encouraged by their Prime Minister, give way to the temptation to announce a surprise cut in interest rates. The trouble was that the wonders of Bank independence were eventually subject to Macmillan’s famous obstacle of ‘events’. Anxious to please the City, Brown and Balls were happy to go along with light-touch regulation, although Brown had for some years been calling for stronger global financial regulation – ‘a proper monitoring of risk and an early warning system’. But, as he wrote after the deluge, ‘I had to accept that I had lost the argument.’ However, Brown freely acknowledged in retrospect that it had been a mistake to subscribe to what had become an international consensus. This consensus, led by the then chairman of the Federal Reserve, Alan Greenspan, held that the sophistication of modern financial markets had reduced the dangers of a financial crisis via the diversification of risk, all those fancy new ‘products’ and what became known as ‘financial engineering’.


pages: 207 words: 86,639

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

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

These distortions stem from the lack of competition regulation at global level, but they are also a symptom of the blind eye being turned to monopolies by national regulators, forced to accept them because other countries accept them. Worse, the regulators have castrated themselves because they perceive an unspoken message from their governments that they prefer a handful of whales, which they believe they can influence and draw on for economic muscle, to having to deal with a multiplicity of sprats. Our governments have lost faith in genuinely open markets, while protecting free markets for the wealthy alone. Light touch regulation of the financial sector is now seen as a major factor leading up to the global economic crash of 2008. 86 THE NEW ECONOMICS But money itself is a measuring tool that also encourages monoculture. Different currencies might measure a variety of assets differently, but since they are all increasingly linked, so the yardstick they use is increasingly the same. The results are everywhere: the impoverished local economies, the emptying of the great harbours and rivers that have bustled for a thousand years, the weed-covered farming communities, even the great corporations – whatever else we may think of them – shedding all the real work until they are just shells that deliver only financial services.


pages: 365 words: 88,125

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

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

Now, the real trouble is that what countries like Iceland and Ireland were implementing were only more extreme forms of the economic strategy being pursued by many countries – a growth strategy based on financial deregulation, first adopted by the US and the UK in the early 1980s. The UK put its financial deregulation programme into a higher gear in the late 1980s, with the so-called ‘Big Bang’ deregulation and since then has prided itself on ‘light-touch’ regulation. The US matched it by abolishing the 1933 Glass-Steagall Act in 1999, thereby tearing down the wall between investment banking and commercial banking, which had defined the US financial industry since the Great Depression. Many other countries followed suit. What was encouraging more and more countries to adopt a growth strategy based on deregulated finance was the fact that in such a system it is easier to make money in financial activities than through other economic activities – or so it seemed until the 2008 crisis.


pages: 263 words: 80,594

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

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

Whilst finance has always played a central role in British politics, in the 1980s and 1990s the City’s dominance was taken to a whole new level. This was initially catalysed by Thatcher’s policies — from bank deregulation, to right-to-buy, to the Big Bang. But Blair and Brown took this process one step further. They developed a complex and arcane regulatory architecture for the City that was easy for insiders to manipulate. These organisations were given a mandate to implement “light touch” regulation on the finance sector, to encourage “innovation” and promote investment.7 Meanwhile, billions of pounds were pumped into the UK’s real estate market, inflating a bubble that would eventually burst in the biggest financial crisis since 1929. The revenues from this model were then used to expand the provision of welfare and public services for those left out of the boom, under the auspices of the private sector, which was given responsibility for delivering public services.


pages: 223 words: 10,010

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

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

In opposition, Tony Blair had, for a time, been Labour’s spokesman on the City while Brown immersed himself in the detail of banking. In power, the political love-affair with the City launched by the Conservatives continued. Brown and Blair struck a Faustian pact with the City. The new government wanted finance to continue to play the vanguard role in the economy. To help make finance the engine of growth and prosperity, Labour promised to continue the policy of light touch regulation and turn a blind eye to some of the seedier activities of the business elite. New Labour embraced the new market experiment launched by Mrs Thatcher more or less in full. The government introduced some changes to moderate the more extreme aspects of the labour market—with measures such as the minimum wage and greater workplace protection. Despite this, a decade later, according to the OECD, Britain continued to have one of the least regulated labour markets of all developed economies.137 Labour was also relaxed about the greater concentration of income and wealth that had occurred under the Conservatives.


pages: 327 words: 90,542

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

"Robert Solow", 9 dash line, accounting loophole / creative accounting, additive manufacturing, Airbnb, Albert Einstein, Alfred Russel Wallace, Anton Chekhov, Asian financial crisis, banking crisis, Berlin Wall, bitcoin, 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, 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, disintermediation, disruptive innovation, Downton Abbey, Emanuel Derman, energy security, energy transition, eurozone crisis, financial innovation, financial repression, forward guidance, Francis Fukuyama: the end of history, full employment, gig economy, Gini coefficient, global reserve currency, global supply chain, Goldman Sachs: Vampire Squid, happiness index / gross national happiness, 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), Jane Jacobs, John Maynard Keynes: technological unemployment, Kenneth Rogoff, knowledge economy, knowledge worker, light touch regulation, liquidity trap, Long Term Capital Management, low skilled workers, Lyft, Mahatma Gandhi, margin call, market design, Marshall McLuhan, Martin Wolf, Mikhail Gorbachev, mortgage debt, mortgage tax deduction, new economy, New Urbanism, offshore financial centre, oil shale / tar sands, oil shock, old age dependency ratio, open economy, passive income, peak oil, peer-to-peer lending, pension reform, plutocrats, 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, Ronald Reagan, Satyajit Das, savings glut, secular stagnation, seigniorage, sharing economy, Silicon Valley, Simon Kuznets, Slavoj Žižek, South China Sea, sovereign wealth fund, 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

HSBC, another British bank, has set aside US$700 million against potential fines payable to US authorities for similar offenses. The transactions had no American nexus in many cases, other than US dollar payments made via New York. The UK argues that allegations of banking misconduct are designed to tarnish the integrity of London and its status as one of the world's major financial centers. The US argues that the problems relate to the laxity of Britain's famous light-touch regulations, which have been a factor in the rise of London as a global finance hub. Europeans argue that the prosecution of BNP Paribas was related to US opposition to the French sale of two helicopter assault ships for €1.2 billion to Russia, or to General Electric's unsuccessful bid for Alstom, manufacturer of France's TGV high-speed train. The use of banking laws in this way does not improve the safety of the financial system or facilitate international cooperation.


pages: 355 words: 92,571

Capitalism: Money, Morals and Markets by John Plender

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

It would make Dodd–Frank look like a warm-up Act.51 There has been a similar escalation in the number of watchdogs. In the same paper, Haldane and Madouros point out that in the UK, for example, there was one regulator in 1980 for roughly every 11,000 people employed in the UK financial sector. By 2011, there was one for every 300 people employed in finance. This manic escalation in regulatory enthusiasm – nonetheless referred to as ‘light-touch’ regulation before 2007 – was wholly ineffective in preventing the financial crisis. It also leads to manic escalation in the number of bankers engaged in compliance activities. In September 2013, Jamie Dimon, chief executive of JPMorgan Chase, America’s biggest bank, sent a memo to staff revealing that the bank had added a whopping 3,000 employees to bolster controls, devoted 500 people to fulfilling the Federal Reserve’s stress tests, and given staff 750,000 hours of training on compliance matters.


Small Change: Why Business Won't Save the World by Michael Edwards

Bernie Madoff, clean water, corporate governance, corporate social responsibility, different worldview, high net worth, invisible hand, knowledge economy, light touch regulation, Mahatma Gandhi, Mark Shuttleworth, market bubble, microcredit, Nelson Mandela, New Journalism, Ponzi scheme, profit motive, Robert Shiller, Robert Shiller, shareholder value, Silicon Valley, Silicon Valley startup, Social Responsibility of Business Is to Increase Its Profits, The Fortune at the Bottom of the Pyramid, The Spirit Level, The Wealth of Nations by Adam Smith, transaction costs

Will philanthrocapitalism finally resolve Adam Smith’s dilemma? In conventional market thinking, “the social responsibility of business is to increase its profits,” as Milton Friedman famously declared almost forty years ago in the pages of the New York Times. That is because the invisible hand is supposed “to be beneficial for the people it orders,” maximizing social welfare as a by-product of self-interested but unconscious interactions, with some light regulation to ensure that business operates inside a framework of agreed-upon social rules.2 One of the virtues the high cost of mission drift 65 of markets is that, at least in theory, they can ensure that each resource is used where returns are highest and is combined with other resources in the most efficient way, even though producers and consumers do not coordinate their decisions. Philanthrocapitalism gives this theory an extra twist by adding more explicit social and environmental considerations into economic decision making, but the drivers of change are still internal and relatively unplanned — otherwise, efficiency would suffer because bureaucrats would second-guess what only markets can decide.


pages: 376 words: 109,092

Paper Promises by Philip Coggan

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

Preventing recessions may be a little like the old practice of preventing even small fires in national forests; the effect is to allow a lot of brushwood to build up so that when a fire does happen, it is catastrophically big. None of this would have happened under the gold standard or the Bretton Woods system. Under the former, the US reserves would have run out long before China had built up such huge surpluses; under the latter, trade deficits could not last for ever (indeed that is why the system broke down). REGULATION This ‘markets are right’ philosophy was also reflected in light-touch regulation. It was assumed that the private sector would act to regulate itself. It would not lend money to those who might not pay it back; it would not take risks that might destroy its balance sheet. After all, the executives of banks were also shareholders. Why should they risk the loss of their fortunes? This assumption was proved spectacularly wrong in 2007 and 2008. Why did the bankers get it so wrong?


pages: 380 words: 109,724

Don't Be Evil: How Big Tech Betrayed Its Founding Principles--And All of US by Rana Foroohar

"side hustle", accounting loophole / creative accounting, Airbnb, AltaVista, autonomous vehicles, banking crisis, barriers to entry, Bernie Madoff, Bernie Sanders, bitcoin, book scanning, Brewster Kahle, Burning Man, call centre, cashless society, cleantech, cloud computing, cognitive dissonance, Colonization of Mars, computer age, corporate governance, creative destruction, Credit Default Swap, cryptocurrency, data is the new oil, death of newspapers, Deng Xiaoping, disintermediation, don't be evil, Donald Trump, drone strike, Edward Snowden, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, Etonian, Filter Bubble, future of work, game design, gig economy, global supply chain, Gordon Gekko, greed is good, income inequality, informal economy, information asymmetry, intangible asset, Internet Archive, Internet of things, invisible hand, Jaron Lanier, Jeff Bezos, job automation, job satisfaction, Kenneth Rogoff, life extension, light touch regulation, Lyft, Mark Zuckerberg, Marshall McLuhan, Martin Wolf, Menlo Park, move fast and break things, move fast and break things, Network effects, new economy, offshore financial centre, PageRank, patent troll, paypal mafia, Peter Thiel, pets.com, price discrimination, profit maximization, race to the bottom, recommendation engine, ride hailing / ride sharing, Robert Bork, Sand Hill Road, search engine result page, self-driving car, shareholder value, sharing economy, Shoshana Zuboff, Silicon Valley, Silicon Valley startup, smart cities, Snapchat, South China Sea, sovereign wealth fund, Steve Jobs, Steven Levy, subscription business, supply-chain management, TaskRabbit, Telecommunications Act of 1996, The Chicago School, the new new thing, Tim Cook: Apple, too big to fail, Travis Kalanick, trickle-down economics, Uber and Lyft, Uber for X, uber lyft, Upton Sinclair, WikiLeaks, zero-sum game

We should also consider whether the public sector, rather than private companies, should be the repository of some data wealth, and help ensure that private sector actors have equal access to it and that citizens have more control over just how it is monetized. The conventional wisdom has been that in the brave new world of big data and artificial intelligence, which will drive global growth over the next several decades, there can be only two models: China’s surveillance state, in which the government knows and directs all; or the light touch regulation of the United States, which has bred a collection of monopoly powers that may well be choking off job creation and growth in the larger economy. But there is a third way—one that France and other countries are pursuing—that aims for a middle ground. In Europe, the public sector already holds a large amount of data—in health, transportation, defense, security, and the environment—of the sort that will be needed to develop artificial intelligence and other big data applications.


EuroTragedy: A Drama in Nine Acts by Ashoka Mody

"Robert Solow", Andrei Shleifer, asset-backed security, availability heuristic, bank run, banking crisis, Basel III, Berlin Wall, book scanning, Bretton Woods, call centre, capital controls, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, credit crunch, Daniel Kahneman / Amos Tversky, debt deflation, Donald Trump, eurozone crisis, Fall of the Berlin Wall, financial intermediation, floating exchange rates, forward guidance, George Akerlof, German hyperinflation, 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, liberal capitalism, light touch regulation, liquidity trap, loadsamoney, London Interbank Offered Rate, Long Term Capital Management, 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, premature optimization, price stability, purchasing power parity, quantitative easing, rent-seeking, Republic of Letters, Robert Gordon, Robert Shiller, Robert Shiller, short selling, Silicon Valley, 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

Regulators allowed the banks to hold only modest amounts of “high-​quality” capital—​ cash and equity rather than bonds of various kinds that required repayment to creditors.43 Thus, banks could invest in government bonds without setting aside any capital; regulators assumed that governments would not default on their bonds. In addition, riding on Basel I, a 1988 international agreement on minimum capital requirements, regulators allowed banks to classify home mortgages as relatively low-​risk assets, which, therefore, required limited capital backing. Then after 2004, the “light-​touch” regulation philosophy in an updated international accord, Basel II, gave “sophisticated” banks great latitude in reaching their own judgments on how risky their assets were and, therefore, on how much capital they needed to set aside for potential losses. Banks had more scope to under-​report and even hide their risks. European regulators made one especially important concession to their banks. Unlike their US counterparts, European regulators did not require banks to hold minimum amounts of “equity” capital as a reliable cushion to absorb losses on risky assets.44 In the United States, if a bank’s assets increased disproportionately relative to its equity (in the language of regulators and financial markets, if its leverage ratio rose above a threshold), the bank needed to take “prompt corrective action” to reduce its assets or increase its equity.

Euro-​area bank funding becomes riskier. Source: Bankscope. euro-​area banks were boosting their lending with unreliable funds and weak capital shock absorbers. European banks were becoming steadily riskier, but their regulators were not concerned. To be sure, some large US banks developed the same fragilities as European banks. After all, Fed Chairman Greenspan was the philosopher who promoted “light-​touch” regulation and its transformation into Basel II.46 The cap on leverage for US investment banks was lifted in 2004 by their regulator, the US Securities and Exchange Commission (SEC). Investment banks promptly ratcheted up their leverage and used the borrowed funds to invest furiously in mortgage-​backed securities.47 The US Financial Crisis Inquiry Commission would later conclude: “The Securities and Exchange Commission’s poor oversight of the five largest investment banks failed to restrict their risky activities and did not require them to hold adequate capital and liquidity for their activities.”48 But Basel II had its true home in Europe, where regulators applied it indiscriminately across the continent’s vast banking system.


pages: 429 words: 120,332

Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens by Nicholas Shaxson

Asian financial crisis, asset-backed security, bank run, battle of ideas, Bernie Madoff, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business climate, call centre, capital controls, collapse of Lehman Brothers, computerized trading, corporate governance, corporate social responsibility, creative destruction, Credit Default Swap, David Ricardo: comparative advantage, Double Irish / Dutch Sandwich, failed state, financial deregulation, financial innovation, Fractional reserve banking, full employment, high net worth, income inequality, Kenneth Rogoff, laissez-faire capitalism, land reform, land value tax, light touch regulation, Long Term Capital Management, Martin Wolf, money market fund, New Journalism, Northern Rock, offshore financial centre, oil shock, old-boy network, out of africa, passive income, plutocrats, Plutocrats, Ponzi scheme, race to the bottom, regulatory arbitrage, reserve currency, Ronald Reagan, shareholder value, The Spirit Level, too big to fail, transfer pricing, Washington Consensus

In reports in July 2008 Stewart investigated the Dublin International Financial Services Centre (IFSC), a secrecy jurisdiction set up in 1987 under the corrupt Irish politician Charles Haughey with help primarily from City of London interests.41 A showcase for high-risk, Wild West financial capitalism, the Dublin IFSC emerged the year after London’s giant deregulatory Big Bang and now hosts over half the world’s top 50 financial institutions. It became a big player in the shadow banking system and now hosts eight thousand funds with $1.5 trillion in assets. Perhaps most alluring of all Dublin’s lures, Stewart said, is its “light touch regulation.”42 In June 2007 two Bear Stearns hedge funds incorporated in the Cayman Islands announced huge losses, presaging its collapse. Bear Stearns had two investment funds and six debt securities listed on the Irish Stock Exchange and operated three subsidiaries in the Dublin IFSC through a holding company, Bear Stearns Ireland Ltd., for which every dollar of equity financed $119 of gross assets—an exceedingly high and dangerous ratio.


pages: 523 words: 111,615

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

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

A whole generation of policy makers has been mesmerized by Wall Street, always and utterly convinced that whatever the banks said was true.24 John Kay, another eminent economist, made a similar point about the UK government in a Financial Times column, “Investment bankers had become the most powerful political lobby in the country and there was no vestige of political support for action to restrain City excess. Light touch regulation was not just a matter of policy but a matter of pride. . . . Little has changed. The government continues to see financial services through the eyes of the financial services industry, for which the priority is to restore business as usual.”25 The failures of government go wider, however. Public services are lagging in their productivity and failing to deliver what citizens want. The public sector faces a huge challenge in trying to improve when government budgets will have to be slashed by far, far more than any time since before the Second World War.


pages: 388 words: 125,472

The Establishment: And How They Get Away With It by Owen Jones

anti-communist, Asian financial crisis, bank run, battle of ideas, Big bang: deregulation of the City of London, bonus culture, Boris Johnson, Bretton Woods, British Empire, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, centre right, citizen journalism, collapse of Lehman Brothers, collective bargaining, don't be evil, Edward Snowden, Etonian, eurozone crisis, falling living standards, Francis Fukuyama: the end of history, full employment, G4S, glass ceiling, hiring and firing, housing crisis, inflation targeting, Intergovernmental Panel on Climate Change (IPCC), investor state dispute settlement, James Dyson, laissez-faire capitalism, light touch regulation, market fundamentalism, mass immigration, Monroe Doctrine, Mont Pelerin Society, moral hazard, Neil Kinnock, night-watchman state, Northern Rock, Occupy movement, offshore financial centre, old-boy network, open borders, plutocrats, Plutocrats, popular capitalism, profit motive, quantitative easing, race to the bottom, rent control, road to serfdom, Ronald Reagan, shareholder value, short selling, sovereign wealth fund, stakhanovite, statistical model, The Wealth of Nations by Adam Smith, transfer pricing, union organizing, unpaid internship, Washington Consensus, wealth creators, Winter of Discontent

They [HMRC] would base the way they dealt with large companies on trust, on building a partnership, a relationship, with “customer relationship managers” instead of case directors.’ Brooks sums up this new attitude pithily: ‘It became one of essentially believing what you were told.’ This outlook is wholly consistent with the prevailing laissez-faire ideology of the Establishment. ‘It was all entirely in keeping with the ascendancy of light-touch regulation,’ Brooks says. ‘They took this light touch to a ridiculous extreme.’ Those in the HMRC who opposed this new approach faced being written off in the same way as other opponents of the Establishment. ‘If you challenged it,’ he recalls, ‘you were made out like a dinosaur, an opponent of modernization. There was a way of communicating to show you were part of the new creed – management speak and so on – and if you don’t fit that mould, you’re sidelined.


pages: 478 words: 126,416

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

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

The public applauds not the cautious captain who escapes the storm but the heroic seaman who, like McWhirr, battles successfully through. Some regulators were essentially placemen, put there by the industry and its political cronies to represent the interests of the businesses over which they exerted nominal oversight. But others were honest and committed public servants: they were, however, constantly aware of the political influence of the industry. ‘Light touch regulation’ was the product not of idle regulators but of the demands of the industry transmitted through the political process. Compare the remarks of Gordon Brown (Chapters 1 and 9) with those of Theodore (Chapter 1) and Franklin (frontispiece) Roosevelt. In northern Europe and North America there is little evidence of overt corruption in regulatory agencies, or at the senior levels of politics, finance and business.


pages: 476 words: 139,761

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

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

If they were in any doubt, they could turn to the consultants who worked for the hedge funds and who would visit the FSA’s offices in Canary Wharf to give stylish presentations that made the whole thing look thoroughly legitimate. And yet, there he was, employee of the month. The laurels might have sat a little uneasily on Nigel’s rebellious brows. But perhaps times were finally changing. George Osborne had picked Martin Wheatley, a tough former head of the Hong Kong market regulator, to run the new Financial Conduct Authority. His appointment was a departure from the ‘light touch’ regulation with which Blair’s New Labour had sought to prolong Thatcher’s big bang. Wheatley’s stated approach to the City was, ‘Shoot first and ask questions later.’ Still, Nigel could not help but wonder why the warning he had delivered back in 2008 had gone unheeded by the very watchdog to which he now commuted from Kensington every day. After he’d sent his letter explaining his belief that BSI’s office in the City was shifting dirty money, an official called Neil from the FSA’s intelligence unit had emailed him.


pages: 289 words: 77,532

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

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

A strong believer in the importance of government service, Francesca, whose father had been at Pearl Harbor, had encouraged Gensler to leave the private sector and had helped him compose a letter to Robert Rubin, the fellow Goldman alum who was then treasury secretary, inquiring about a post. Gensler had already made a lot of money at Goldman, and a job at Treasury seemed worth uprooting their lives for. It was an era of light regulation in Washington, and it was the dot-com boom: Internet companies like Netscape, Yahoo, and Amazon were hitting the public markets with wild success, and small investors were shifting in mass numbers into stocks. Under the guidance of the conservative Fed chairman Alan Greenspan and, later, Rubin’s successor at Treasury, Lawrence Summers, officials were beating back attempts to curb trading in off-exchange commodities and other risky contracts—including a notable push by Brooksley Born, the female lawyer who was chair of the CFTC.


pages: 772 words: 203,182

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

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

Even now, there isn’t a major power in the world that wouldn’t happily change places with the United States.”14 With American wages stagnant for a generation, productivity growth poor, and investment weak, this sort of economic jingoism is dismissed by economists, such as these at the OECD: “It has been claimed by some that only countries which emphasize market-oriented policies (limited welfare benefits, light regulation) may enjoy both successful employment performance and strong labour productivity growth simultaneously…. This claim is not supported by the evidence in this chapter, however. Indeed the chapter finds that other successful employment performers (which combine strong work incentives with generous welfare protection and well-designed regulation) had, on average over the past decade, similar GDP per capita growth to that recorded in more market-reliant counties.”15 Moreover, most voters in Australia or northern Europe would find risible the notion of switching places with the 95 percent of Americans whose wages have stagnated for a generation.

Indeed, more respondents believed that income differences are a source of conflict (66 percent) than believe the nation is divided instead by immigrants versus native born (62 percent) or on questions of race (38 percent).12 These polling results, coupled with financial crises and weak economic recovery, have led some to conclude that reform is inevitable. Here is Financial Times journalist Francesco Guerrera writing during the depths of the stock market decline in March 2009 about corporate governance reforms: “Long-held tenets of corporate faith—the pursuit of shareholder value, the use of stock options to motivate employees, and a light regulator touch allied with board oversight of management—are being blamed for the turmoil and look likely to be overhauled…. As a result, the composition of boards is likely to change dramatically.”13 Mutual fund manager John P. Hussman is similarly optimistic: “Economies that generate high profits, weak wage gains, and low capital accumulation are like old-style monopolies that … fail to produce long-term prosperity or growth.


pages: 524 words: 143,993

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

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

On the contrary, it is perfectly possible to imagine that it would recur. This, then, is the topic of Chapter Nine. 6 Orthodoxy Overthrown The message London’s success sends out to the whole British economy is that we will succeed if like London we think globally. Move forward if we are not closed but open to competition and to new ideas. Progress if we invest in and nurture the skills of the future, advance with light touch regulation, a competitive tax environment and flexibility. Grow even stronger if this is founded on a strong domestic market built on the foundation of stability. And whether it be in advanced high value-added manufacturing, our creative industries, pharmaceuticals, digital electronics, in fast-growing education exports, I believe, just as you have done in financial services, we can demonstrate that just as in the 19th century industrialization was made for Britain, in the twenty-first century globalization is made for Britain too.


pages: 482 words: 149,351

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

activist fund / activist shareholder / activist investor, Airbnb, airline deregulation, anti-communist, bank run, banking crisis, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, Blythe Masters, Boris Johnson, Bretton Woods, British Empire, business climate, business cycle, capital controls, carried interest, Cass Sunstein, Celtic Tiger, central bank independence, centre right, Clayton Christensen, cloud computing, corporate governance, corporate raider, creative destruction, Credit Default Swap, cross-subsidies, David Ricardo: comparative advantage, demographic dividend, Deng Xiaoping, desegregation, Donald Trump, Etonian, failed state, falling living standards, family office, financial deregulation, financial innovation, forensic accounting, Francis Fukuyama: the end of history, full employment, gig economy, Gini coefficient, global supply chain, high net worth, income inequality, index fund, invisible hand, Jeff Bezos, Kickstarter, land value tax, late capitalism, light touch regulation, London Whale, Long Term Capital Management, low skilled workers, manufacturing employment, Mark Zuckerberg, Martin Wolf, Mont Pelerin Society, moral hazard, neoliberal agenda, Network effects, new economy, Northern Rock, offshore financial centre, old-boy network, out of africa, Paul Samuelson, plutocrats, Plutocrats, Ponzi scheme, price mechanism, purchasing power parity, pushing on a string, race to the bottom, regulatory arbitrage, rent-seeking, road to serfdom, Robert Bork, Ronald Coase, Ronald Reagan, shareholder value, sharing economy, Silicon Valley, Skype, smart grid, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, special economic zone, Steve Ballmer, Steve Jobs, The Chicago School, Thorstein Veblen, too big to fail, transfer pricing, wealth creators, white picket fence, women in the workforce, zero-sum game

From ‘Over-the-Counter Derivatives Markets and the Commodity Exchange Act: Report of The President’s Working Group on Financial Markets’, US Treasury, November 1999; and from my telephone interview with Black, 15 September 2012. As Dunbar described (in a telephone interview on 16 May 2018) the general dynamics of the regulatory processes to me in the decade or more leading up to the global financial crisis, the UK Financial Services Authority was seen as a light-touch regulator, so ‘US banks were then able to go back to the SEC or whoever it was in Washington, and say, “We are doing all our business over in London, because you are not being flexible enough.” I think they used that as a stick to beat US regulators with, and that created this race to the bottom.’ 30. The US regulator’s quote and the ‘maggots’ quote are from Dunbar, The Devil’s Derivatives, pp.131 and 141.


pages: 475 words: 155,554

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

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

It is clear that Northern Rock and the FSA initially believed that funding markets would never close; even if they did, the Bank of England would be there as the UK’s lender of last resort. Northern Rock’s mortgages, profits and bonuses were all built on the backstop of the Bank of England. With my own eyes, on the first day of the Northern Rock run, I saw one of Britain’s top regulators struggling with the reality that the glory days of light-touch regulation were over. ‘We’ve got to allow innovation,’ he repeatedly insisted, his face contorted with fear. It was as if he could not quite bring himself to utter the unspoken question: ‘Don’t we?’ Those that work inside Northern Rock point out that holders of Granite bonds have not lost even a penny (although any investors who sold at the bottom of the market did lose their shirts). Credit quality held up sufficiently, even on the high-risk ‘Together’ mortgages.


pages: 528 words: 146,459

Computer: A History of the Information Machine by Martin Campbell-Kelly, William Aspray, Nathan L. Ensmenger, Jeffrey R. Yost

Ada Lovelace, air freight, Alan Turing: On Computable Numbers, with an Application to the Entscheidungsproblem, Apple's 1984 Super Bowl advert, barriers to entry, Bill Gates: Altair 8800, borderless world, Buckminster Fuller, Build a better mousetrap, Byte Shop, card file, cashless society, cloud computing, combinatorial explosion, computer age, deskilling, don't be evil, Donald Davies, Douglas Engelbart, Douglas Engelbart, Dynabook, fault tolerance, Fellow of the Royal Society, financial independence, Frederick Winslow Taylor, game design, garden city movement, Grace Hopper, informal economy, interchangeable parts, invention of the wheel, Jacquard loom, Jeff Bezos, jimmy wales, John Markoff, John von Neumann, Kickstarter, light touch regulation, linked data, Marc Andreessen, Mark Zuckerberg, Marshall McLuhan, Menlo Park, Mitch Kapor, natural language processing, Network effects, New Journalism, Norbert Wiener, Occupy movement, optical character recognition, packet switching, PageRank, pattern recognition, Pierre-Simon Laplace, pirate software, popular electronics, prediction markets, pre–internet, QWERTY keyboard, RAND corporation, Robert X Cringely, Silicon Valley, Silicon Valley startup, Steve Jobs, Steven Levy, Stewart Brand, Ted Nelson, the market place, Turing machine, Vannevar Bush, Von Neumann architecture, Whole Earth Catalog, William Shockley: the traitorous eight, women in the workforce, young professional

On 30 April 1995, the old NSFnet backbone was shut down, ending altogether US government ownership of the Internet’s infrastructure. The explosive growth of the Internet was in large part due to its informal, decentralized structure; anyone was free to join in. However, the Internet could not function as a commercial entity in a wholly unregulated way—or chaos and lawlessness would ensue. The minimal, light-touch regulation that the Internet pioneers evolved was one of its most impressive features. A good example of this is the domain-name system. Domain names—such as amazon.com, whitehouse.gov, and princeton.edu—soon became almost as familiar as telephone numbers. In the mid-1980s the Internet community adopted the domain-name system devised by Paul Mockapetris of the Information Sciences Institute at the University of Southern California.


pages: 304 words: 80,965

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

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

Don’t Bank on It Critics of current remuneration practices often identify “misaligned incentives” as the root of the problem. But let’s put it more plainly: boards are paying CEOs to do the wrong things, and those compensation packages were deeply implicated in the financial crisis. The official Financial Crisis inquiry commission in the United States concluded, “Compensation systems—designed in an environment of cheap money, intense competition, and light regulation—too often rewarded the quick deal, the short-term gain—without proper consideration of long-term consequences. Often, those systems encouraged the big bet—where the payoff on the upside could be huge and the downside limited.”28 Yet the same compensation systems continue today, and banks are no different from other corporations. The many articles written about compensation all agree on two things: first, pay incentives really do affect how executives and companies act, and second, the bigger the company, the more the executives are paid.29 As Harvard professor Lucian Bebchuk and Cornell professor Yaniv Grinstein note, “The association we find between CEOs’ compensation and firm-expanding decisions undertaken earlier during their service could provide CEOs with incentives to expand firm size.”30 It is therefore no surprise that the banks that got into the greatest trouble in the financial crisis were often those that had most aggressively pursued growth.31 Growth is good, so long as it is sustainable.


pages: 394 words: 85,734

The Global Minotaur by Yanis Varoufakis, Paul Mason

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

While President Obama’s administration was busily accepting the Wall Street mantra about no full-blown nationalizations (i.e. the bogus argument that recapitalizing banks by means of temporary nationalizations, as in Sweden in 1993, would quash the public’s confidence in the financial system, thus creating more instability, which might in turn jeopardize any eventual recovery), Wall Street’s banks were already plotting against the administration, intent on using their renewed financial vigour to promote Obama’s political opponents (who offered them promises of offensively light regulation). This twist assumed added significance in January 2010, when the US Supreme Court, by a 5-4 vote, overturned the Tillman Act of 1907, which President Teddy Roosevelt had passed in a bid to ban corporations from using their cash to buy political influence. On that fateful Thursday, the floodgates of Wall Street money were flung open as the court ruled that the managers of a corporation can decide, without consulting with anyone, to write out a cheque to the politician who offers them the best deal, especially regarding regulation of the financial sector in the aftermath of 2008.


pages: 295 words: 90,821

Fully Grown: Why a Stagnant Economy Is a Sign of Success by Dietrich Vollrath

"Robert Solow", active measures, additive manufacturing, American Legislative Exchange Council, barriers to entry, business cycle, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, creative destruction, Deng Xiaoping, endogenous growth, falling living standards, hiring and firing, income inequality, intangible asset, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, labor-force participation, light touch regulation, low skilled workers, manufacturing employment, old age dependency ratio, patent troll, Peter Thiel, profit maximization, rising living standards, Robert Gordon, Second Machine Age, secular stagnation, self-driving car, Silicon Valley, The Rise and Fall of American Growth, total factor productivity, women in the workforce, working-age population

Laffer refers to Arthur Laffer, of the eponymous curve that relates tax revenues to tax rates. ALEC and Laffer combined information on several measures of state economic policies to determine which states are the most competitive. The ranking is not always clear about what is meant by competitive, but the publications associated with the rankings (released every year) show this to be a combination of low taxation and light regulation. Some elements ALEC considers include personal and corporate tax rates, whether there is an inheritance tax, number of public employees, quality of the state legal system, whether or not it is a so-called right-to-work state (meaning that workers cannot be obligated to join a union), and whether there are tax or expenditure limits on the state government. So it isn’t quite an index of regulation alone but an amalgam of taxes and regulations.


pages: 604 words: 165,488

Mr Five Per Cent: The Many Lives of Calouste Gulbenkian, the World's Richest Man by Jonathan Conlin

accounting loophole / creative accounting, anti-communist, banking crisis, British Empire, carried interest, Ernest Rutherford, estate planning, Fellow of the Royal Society, light touch regulation, MITM: man-in-the-middle, Network effects, Pierre-Simon Laplace, rent-seeking, stakhanovite, Yom Kippur War

Shell California was formed with a capital of $30 million and was soon constructing the Valley Pipeline to link its Coalinga field to a new refinery at Martinez. Gulbenkian managed an issue of additional Roxana shares in 1917, bringing its capital to $5 million and funding construction of new pipelines and a refinery at St Louis.28 President Woodrow Wilson’s attempt to eliminate holding companies proved less of an obstacle than might have been feared, largely thanks to the light-touch regulation offered by the state of Delaware.29 Soon Royal Dutch-Shell was lifting more oil inside the United States than Jersey Standard.30 The natural corollary of this was the introduction of Royal Dutch to the New York stock exchange. Although he never travelled to the United States, Gulbenkian had been building ties with the New York investment bank Kuhn Loeb since at least 1907, often working through their Paris representative, Lionel Hauser.


pages: 261 words: 103,244

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

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

This led the OECD, in its 2004 employment outlook, to downgrade their own assessment of negative effects of high minimum wages to a “plausibility” and to admit that the evidence is fragile. By 2007 the attitude of the organization had changed even further. According to the OECD’s new assessment, empirical evidence does not support the claim that only countries that emphasize market-oriented policies, characterized by limited welfare benefits and light regulation, 204 ECONOMISTS AND THE POWERFUL can have low unemployment with strong labor productivity growth. The OECD stressed that the labor market institutions of various lowunemployment countries in Europe differed a great deal. This implies that there is no unambiguous right or wrong with regard to achieving a low rate of unemployment. Stringent employment protection for regular contracts is now considered to have only a small negative impact on long-run productivity, while higher minimum wages and a more generous level and duration of unemployment policies have a positive impact (OECD 2007).


pages: 443 words: 98,113

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

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

This meant the liberalisation of markets, the commodification and privatisation of everything that could be commodified and privatised and the systematic dismantling of all institutions of social solidarity that protected people from ‘market forces’. Regulations were justifiable only if they promoted economic growth; if not, they had to go. The agenda involved strict re-regulation of labour markets and only light regulation of financial markets. The argument was that, if left alone, financial markets would reward efficient firms and punish inefficient ones, which would go out of business; meanwhile, financiers could help with mergers and transfers of ownership to the more efficient. This reasoning also bolstered demands for the privatisation of state enterprises, which was soon embraced with almost as much enthusiasm by social democratic parties as by their right-wing opponents – witness the French socialist government of Lionel Jospin and the New Labour government of Tony Blair.


Falter: Has the Human Game Begun to Play Itself Out? by Bill McKibben

23andMe, Affordable Care Act / Obamacare, Airbnb, American Legislative Exchange Council, Anne Wojcicki, artificial general intelligence, Bernie Sanders, Bill Joy: nanobots, Burning Man, call centre, carbon footprint, Charles Lindbergh, clean water, Colonization of Mars, computer vision, David Attenborough, Donald Trump, double helix, Edward Snowden, Elon Musk, ending welfare as we know it, energy transition, Flynn Effect, Google Earth, Hyperloop, impulse control, income inequality, Intergovernmental Panel on Climate Change (IPCC), Jane Jacobs, Jaron Lanier, Jeff Bezos, job automation, life extension, light touch regulation, Mark Zuckerberg, mass immigration, megacity, Menlo Park, moral hazard, Naomi Klein, Nelson Mandela, obamacare, off grid, oil shale / tar sands, pattern recognition, Peter Thiel, plutocrats, Plutocrats, profit motive, Ralph Waldo Emerson, Ray Kurzweil, Robert Mercer, Ronald Reagan, Sam Altman, self-driving car, Silicon Valley, Silicon Valley startup, smart meter, Snapchat, stem cell, Stephen Hawking, Steve Jobs, Steve Wozniak, Steven Pinker, strong AI, supervolcano, technoutopianism, The Wealth of Nations by Adam Smith, traffic fines, Travis Kalanick, urban sprawl, Watson beat the top human players on Jeopardy!, Y Combinator, Y2K, yield curve

Donald Trump, I think, would have had a hard time being elected a mayor or a governor, because the damage he’d have done would have hit too close to home. But given the size of America, people could vote for him for president on the theory that he’d “shake things up,” reasonably confident that they wouldn’t be hit by the falling pieces. What I’m trying to say is what worked in the past doesn’t automatically work in the future. At one point, growth provided more benefit than cost. Light regulation spurred expansion. Larger scale offered efficiencies that made us richer. Fine. You want your child to grow—if she doesn’t, you take her to the doctor. But if she’s twenty-two and still shooting up by six inches a year, you take her to the doctor, too. There’s a time and a place for growth, and a time and a place for maturity, for balance, for scale. And the risks we’re currently running, the risks I’ve spent this book describing, suggest that that time is now.


pages: 356 words: 103,944

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

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

Consider a typical conflict in a developing economy: foreign bankers prefer high interest rates and an appreciated currency while domestic exporters prefer low interest rates and a cheaper currency. Which of these two outcomes should monetary and fiscal institutions be designed to deliver? More often than not, exporters’ preferences will do the most good for the economy as a whole, and hence the economies where finance does not have the upper hand politically will prosper. More generally, banking interests tend to have a preference for very light regulation regardless of the implications for the rest of the economy. Their influence can have quite a corrupting effect on politics and institutions when it goes unchallenged by others. Indeed, the mortal blow to the “collateral benefits” argument was struck by the subprime mortgage meltdown, which demonstrated finance’s remarkable ability to undermine governance—and to do so in the richest and oldest democracy in the world.


pages: 328 words: 97,711

Talking to Strangers: What We Should Know About the People We Don't Know by Malcolm Gladwell

Berlin Wall, Bernie Madoff, borderless world, crack epidemic, Ferguson, Missouri, financial thriller, light touch regulation, Mahatma Gandhi, Milgram experiment, moral panic, Ponzi scheme, Renaissance Technologies, Snapchat

“If you’re accused of profiling or pretextual stops, you can bring your daily logbook to court and document that pulling over motorists for ‘stickler’ reasons is part of your customary pattern,” Remsberg writes, “not a glaring exception conveniently dusted off in the defendant’s case.” That’s exactly what Encinia did. He had day after day like September 11, 2014. He got people for improper mud flaps and for not wearing a seat belt and for straddling lanes and for obscure violations of vehicle-light regulations. He popped in and out of his car like a Whac-A-Mole. In just under a year on the job, he wrote 1,557 tickets. In the twenty-six minutes before he stopped Sandra Bland, he stopped three other people. So: Encinia spots Sandra Bland on the afternoon of July 10. In his deposition given during the subsequent investigation by the Inspector General’s office of the Texas Department of Public Safety, Encinia said he saw Bland run a stop sign as she pulled out of Prairie View University.


pages: 430 words: 109,064

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

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

As it turned out, the original Federal Reserve lacked the modern regulatory powers necessary to constrain the banks. In addition, the first president of the powerful Federal Reserve Bank of New York was none other than Benjamin Strong, J. P. Morgan’s lieutenant and the ultimate Wall Street insider. As a result, the initial “solution” to the problem revealed by the Panic of 1907 would prove to be anything but. Instead, light regulation and cheap money would encourage banks to take on enough speculative risk to threaten the entire economy. Theodore Roosevelt was able to curtail the growth of industrial trusts and shift the mainstream consensus so that large concentrations of economic power came to be seen by most people as dangerous to society.74 But despite this success against the trusts, the movement to constrain the power of big banks failed, even with one of its leading advocates, Louis Brandeis, as an adviser to President Wilson.


pages: 382 words: 105,819

Zucked: Waking Up to the Facebook Catastrophe by Roger McNamee

4chan, Albert Einstein, algorithmic trading, AltaVista, Amazon Web Services, barriers to entry, Bernie Sanders, Boycotts of Israel, Cass Sunstein, cloud computing, computer age, cross-subsidies, data is the new oil, Donald Trump, Douglas Engelbart, Douglas Engelbart, Electric Kool-Aid Acid Test, Elon Musk, Filter Bubble, game design, income inequality, Internet of things, Jaron Lanier, Jeff Bezos, John Markoff, laissez-faire capitalism, Lean Startup, light touch regulation, Lyft, Marc Andreessen, Mark Zuckerberg, market bubble, Menlo Park, Metcalfe’s law, minimum viable product, Mother of all demos, move fast and break things, move fast and break things, Network effects, paypal mafia, Peter Thiel, pets.com, post-work, profit maximization, profit motive, race to the bottom, recommendation engine, Robert Mercer, Ronald Reagan, Sand Hill Road, self-driving car, Silicon Valley, Silicon Valley startup, Skype, Snapchat, social graph, software is eating the world, Stephen Hawking, Steve Jobs, Steven Levy, Stewart Brand, The Chicago School, Tim Cook: Apple, two-sided market, Uber and Lyft, Uber for X, uber lyft, Upton Sinclair, WikiLeaks, Yom Kippur War

Critics who charge that regulation is too blunt an instrument for an industry like tech are not wrong, but they miss the point. The goal of regulation is to change incentives. Industries that ignore political pressure for reform, as the internet platforms have, should expect ever more onerous regulatory initiatives until they cooperate. The best way for tech to avoid heavy regulation is for the industry leaders to embrace light regulation and make appropriate changes to their business practices. In July 2017, when Tristan and I arrived in Washington, DC, the town remained comfortably in the embrace of the major tech platforms. Google and Facebook led a large tech industry presence on Capitol Hill. Facebook director Peter Thiel continued to advise President Trump, leading high-profile meetings in the White House with technology executives.


pages: 335 words: 111,405

B Is for Bauhaus, Y Is for YouTube: Designing the Modern World From a to Z by Deyan Sudjic

3D printing, additive manufacturing, Albert Einstein, Berlin Wall, Boris Johnson, Buckminster Fuller, call centre, carbon footprint, clean water, dematerialisation, deskilling, edge city, Elon Musk, Frank Gehry, Guggenheim Bilbao, illegal immigration, James Dyson, Jane Jacobs, Kitchen Debate, light touch regulation, market design, megastructure, moral panic, New Urbanism, place-making, QWERTY keyboard, Silicon Valley, Steve Jobs, Steve Wozniak, the scientific method, University of East Anglia, urban renewal, urban sprawl, young professional

This is, then, apparently, not just a Krier who has changed his mind about tactics but also a Krier who is attempting to present a less unremitting fury about the world around him. But Krier, even when he is being conciliatory, flavours his words with invective. His opponents are guilty, he says, of ‘unjustifiable nonsense’. Even if they are concerned with nothing more controversial than street lighting, regulations that Krier takes objection to are ‘insane’. Naturally, ‘the idea of replacing the world’s rich panoply of traditional architecture by a single international style is dangerously insane’, an observation which, given that it would be all but impossible to find anyone who would suggest such a thing, seems a little redundant. However, it is possible to see a certain family resemblance between the languid village hall in Florida designed by Krier and his work on the Italian town of Alexandria.


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

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

And finally, there is the historical evidence: does history show that optimal self-adjusting processes are normal or exceptional?1 Simplifying, if we consider just neo-classical and Keynesian economics, we find near one end of all three curves the Chicago School, and near the other end the Keynesian School. Chicago School proponents believe that smooth and rapid selfadjustment to full employment is normal within a framework of rulebased monetary policy and ‘light touch’ regulation. Keynesians deny that a market system has an automatic tendency to full employment. It achieves this happy state only in ‘moments of excitement’. In the Keynesian perspective, the dynamics of adjustment to ‘shocks’ point the economy away from, not back towards, an optimum equilibrium. Therefore, governments should actively pursue full employment policies, with such regulation of private sector activity as is necessary to bring this about.


pages: 341 words: 116,854

The Devil's Playground: A Century of Pleasure and Profit in Times Square by James Traub

Anton Chekhov, Broken windows theory, Buckminster Fuller, Charles Lindbergh, delayed gratification, Donald Trump, fear of failure, intangible asset, Jane Jacobs, jitney, light touch regulation, megastructure, New Urbanism, Peter Eisenman, plutocrats, Plutocrats, price mechanism, rent control, Ronald Reagan, upwardly mobile, urban planning, urban renewal

It quickly found the latter in Lehman Brothers, which had lost its headquarters, in the World Financial Center. In early October, Lehman bought the building, for $700 million. The sign, which had been four years in the making, was an afterthought. By the time Lehman formally took title, in early December, three of the six segments were up and running, but Lehman had suspended work on the rest. In order to comply with the Times Square lighting regulations, Lehman continued to run the sign, but it kept only the most literal-minded images—the suspension bridge and the gallery of pedestrians— and ran them over and over until it was difficult to remember why the sign had been worth caring about in the first place. It was understandable that after the tremendous shock of 9/11, and the sheer logistical challenge of moving, reprogramming the sign was not exactly a top priority.


pages: 385 words: 118,901

Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street by Sheelah Kolhatkar

Bernie Madoff, Donald Trump, family office, fear of failure, financial deregulation, hiring and firing, income inequality, light touch regulation, locking in a profit, margin call, medical residency, mortgage debt, p-value, pets.com, Ponzi scheme, rent control, Ronald Reagan, short selling, Silicon Valley, Skype, The Predators' Ball

The big banks, for the most part, understood what was legal and what wasn’t and had compliance departments in place to make sure they didn’t run too far afoul of the law. The SEC knew what it was supposed to be looking for when it monitored them. Over the previous ten years, however, billions of dollars had moved out of the heavily regulated big banks and into hedge funds, which were aggressive investment vehicles promising enormous returns. Hedge funds were subject to only light regulation, and most operated behind a veil of secrecy. “When you look at the nature of the regulatory cases that have been brought against the big banks—I’m not saying the conduct wasn’t bad,” Bowe told Kang. “But a lot of the cases involved stepping over a line that was far away from the type of stuff going on at the hedge funds.” Look at it in practical terms, Bowe said. Many of the people working at these funds had unconventional backgrounds; their main qualification might be that they were buddies with the fund manager, and they couldn’t have gotten a job at Goldman Sachs if they’d tried.


pages: 409 words: 125,611

The Great Divide: Unequal Societies and What We Can Do About Them by Joseph E. Stiglitz

"Robert Solow", accounting loophole / creative accounting, affirmative action, Affordable Care Act / Obamacare, agricultural Revolution, Asian financial crisis, banking crisis, Berlin Wall, Bernie Madoff, Branko Milanovic, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, clean water, collapse of Lehman Brothers, collective bargaining, computer age, corporate governance, credit crunch, Credit Default Swap, deindustrialization, Detroit bankruptcy, discovery of DNA, Doha Development Round, everywhere but in the productivity statistics, Fall of the Berlin Wall, financial deregulation, financial innovation, full employment, George Akerlof, ghettoisation, Gini coefficient, glass ceiling, global supply chain, Home mortgage interest deduction, housing crisis, income inequality, income per capita, information asymmetry, job automation, Kenneth Rogoff, Kickstarter, labor-force participation, light touch regulation, Long Term Capital Management, manufacturing employment, market fundamentalism, mass incarceration, moral hazard, mortgage debt, mortgage tax deduction, new economy, obamacare, offshore financial centre, oil shale / tar sands, Paul Samuelson, plutocrats, Plutocrats, purchasing power parity, quantitative easing, race to the bottom, rent-seeking, rising living standards, Ronald Reagan, school vouchers, secular stagnation, Silicon Valley, Simon Kuznets, The Chicago School, the payments system, Tim Cook: Apple, too big to fail, trade liberalization, transaction costs, transfer pricing, trickle-down economics, Turing machine, unpaid internship, upwardly mobile, urban renewal, urban sprawl, very high income, War on Poverty, Washington Consensus, We are the 99%, white flight, winner-take-all economy, working poor, working-age population

Their allies in investment banking bought them, sliced and diced the risk, and then passed them on—or at least as much as they could. Our bankers forgot that their job was to prudently manage risk and allocate capital. They became gambling casinos—gambling with other people’s money, knowing that the taxpayer would step in if the losses were too great. They misallocated capital, with massive amounts going into housing that was ultimately unaffordable. Loose money and light regulation were a toxic mixture. It exploded. A GLOBAL CRISIS What made America’s recklessness truly dangerous is that we exported it. A few months ago, some talked about decoupling—that Europe would carry on even as the U.S. suffered a downturn. I always thought that decoupling was a myth, and events have proven that right. Thanks to globalization, Wall Street was able to sell off its toxic mortgages around the world.


pages: 436 words: 76

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

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

Since much of what was previously borrowed was stolen or wasted, this may be a good rather than a bad outcome. 8 The difference between rich and poor states is the result of differ- Culture and Prosperity { 355} ences in the quality of their economic institutions. After four disappointing decades, development agencies have recognized this and used their authority to demand reforms. But the prescriptions have often been facile. What was offered to Russia was not American institutions, but the nostrums of the American business model. The institutions of the market-secure property rights, minimal government economic intervention, light regulation-were supposed to be simple and universal. If these prescriptions were implemented, growth would follow. But the truth about markets is far more complex. Rich states are the product of-literally-centuries of coevolution of civil society, politics, and economic institutions. A coevolution that we only partially understand and cannot transplant. In the only successful examples of transplantation-the Western offshoots-entire populations, and their institutions, were settled in almost empty countries.


pages: 496 words: 131,938

The Future Is Asian by Parag Khanna

3D printing, Admiral Zheng, affirmative action, Airbnb, Amazon Web Services, anti-communist, Asian financial crisis, asset-backed security, augmented reality, autonomous vehicles, Ayatollah Khomeini, barriers to entry, Basel III, blockchain, Boycotts of Israel, Branko Milanovic, British Empire, call centre, capital controls, carbon footprint, cashless society, clean water, cloud computing, colonial rule, computer vision, connected car, corporate governance, crony capitalism, currency peg, deindustrialization, Deng Xiaoping, Dissolution of the Soviet Union, Donald Trump, energy security, European colonialism, factory automation, failed state, falling living standards, family office, fixed income, flex fuel, gig economy, global reserve currency, global supply chain, haute couture, haute cuisine, illegal immigration, income inequality, industrial robot, informal economy, Internet of things, Kevin Kelly, Kickstarter, knowledge worker, light touch regulation, low cost airline, low cost carrier, low skilled workers, Lyft, Malacca Straits, Mark Zuckerberg, megacity, Mikhail Gorbachev, money market fund, Monroe Doctrine, mortgage debt, natural language processing, Netflix Prize, new economy, off grid, oil shale / tar sands, open economy, Parag Khanna, payday loans, Pearl River Delta, prediction markets, purchasing power parity, race to the bottom, RAND corporation, rent-seeking, reserve currency, ride hailing / ride sharing, Ronald Reagan, Scramble for Africa, self-driving car, Silicon Valley, smart cities, South China Sea, sovereign wealth fund, special economic zone, stem cell, Steve Jobs, Steven Pinker, supply-chain management, sustainable-tourism, trade liberalization, trade route, transaction costs, Travis Kalanick, uber lyft, upwardly mobile, urban planning, Washington Consensus, working-age population, Yom Kippur War

Starting in 1978, Mao’s successor, Deng Xiaoping, sought to blend socialism with the opportunities of the global economy. He decollectivized agriculture, allowed private enterprise, and opened the country to foreign trade and investment as the “tiger” economies had done in the preceding decade. In May 1980, Shenzhen in the Pearl River delta became the first Chinese Special Economic Zone, luring foreign capital with tax exemptions and light regulation. It rapidly achieved a 30 percent annual growth rate and mushroomed from a village with a population of 30,000 to a bustling city of 10 million. While making China the leading developing-country destination for foreign investment, Deng also signed a landmark Treaty of Peace and Friendship with Japan and improved ties with both the US and USSR. While the Cold War froze relations between the West and the Soviet Union, Turkey joined the Council of Europe (1949) and NATO (1952).


Virtual Competition by Ariel Ezrachi, Maurice E. Stucke

Airbnb, Albert Einstein, algorithmic trading, barriers to entry, cloud computing, collaborative economy, commoditize, corporate governance, crony capitalism, crowdsourcing, Daniel Kahneman / Amos Tversky, David Graeber, demand response, disintermediation, disruptive innovation, double helix, Downton Abbey, Erik Brynjolfsson, experimental economics, Firefox, framing effect, Google Chrome, index arbitrage, information asymmetry, interest rate derivative, Internet of things, invisible hand, Jean Tirole, John Markoff, Joseph Schumpeter, Kenneth Arrow, light touch regulation, linked data, loss aversion, Lyft, Mark Zuckerberg, market clearing, market friction, Milgram experiment, multi-sided market, natural language processing, Network effects, new economy, offshore financial centre, pattern recognition, prediction markets, price discrimination, price stability, profit maximization, profit motive, race to the bottom, rent-seeking, Richard Thaler, ride hailing / ride sharing, road to serfdom, Robert Bork, Ronald Reagan, self-driving car, sharing economy, Silicon Valley, Skype, smart cities, smart meter, Snapchat, social graph, Steve Jobs, supply-chain management, telemarketer, The Chicago School, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, Travis Kalanick, turn-by-turn navigation, two-sided market, Uber and Lyft, Uber for X, uber lyft, Watson beat the top human players on Jeopardy!, women in the workforce, yield management

Others do not know that your digital assistant was heavi ly involved in draft ing your note. You don’t know the extent to which the personal assistant generated the likes. And none of us know how this note is helping sway the public discourse in ways that benefit the super-platform. As we increasingly rely on our personal assistant, we may not recognize its toll on our well-being. As the personal assistant increasingly controls mundane household tasks, like turning off lights, regulating room temperature, and adjusting our water heater, it will be harder to turn off. But the online (and increasingly offline) tracking of our behavior can impede our creativity, solitude, and mental repose.21 George Orwell famously discussed in 1984 how monitoring our behav ior can adversely affect intellectual freedom: “You had to live—did live, from habit that became instinct—in the assumption that every sound you made was overheard and, except in darkness, every movement scrutinized.”22 As the U.S.


pages: 829 words: 229,566

This Changes Everything: Capitalism vs. The Climate by Naomi Klein

1960s counterculture, activist fund / activist shareholder / activist investor, battle of ideas, Berlin Wall, big-box store, bilateral investment treaty, British Empire, business climate, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, clean water, Climategate, cognitive dissonance, coherent worldview, colonial rule, Community Supported Agriculture, complexity theory, crony capitalism, decarbonisation, deindustrialization, dematerialisation, different worldview, Donald Trump, Downton Abbey, energy security, energy transition, equal pay for equal work, Exxon Valdez, failed state, Fall of the Berlin Wall, feminist movement, financial deregulation, food miles, Food sovereignty, global supply chain, hydraulic fracturing, ice-free Arctic, immigration reform, income per capita, Intergovernmental Panel on Climate Change (IPCC), Internet Archive, invention of the steam engine, invisible hand, Isaac Newton, James Watt: steam engine, Jones Act, Kickstarter, light touch regulation, market fundamentalism, moral hazard, Naomi Klein, new economy, Nixon shock, Occupy movement, offshore financial centre, oil shale / tar sands, open borders, patent troll, Pearl River Delta, planetary scale, post-oil, profit motive, quantitative easing, race to the bottom, Ralph Waldo Emerson, Rana Plaza, renewable energy transition, Ronald Reagan, smart grid, special economic zone, Stephen Hawking, Stewart Brand, structural adjustment programs, Ted Kaczynski, the scientific method, The Wealth of Nations by Adam Smith, trade route, transatlantic slave trade, trickle-down economics, Upton Sinclair, uranium enrichment, urban planning, urban sprawl, wages for housework, walkable city, Washington Consensus, Whole Earth Catalog, WikiLeaks

And yet as Hertsgaard acknowledges, the kind of policies that would be enough “seem preposterous to the political and economic status quo.”43 This state of affairs is, of course, yet another legacy of the free market counterrevolution. In virtually every country, the political class accepts the premise that it is not the place of government to tell large corporations what they can and cannot do, even when public health and welfare—indeed the habitability of our shared home—are clearly at stake. The guiding ethos of light-touch regulation, and more often of active deregulation, has taken an enormous toll in every sector, most notably the financial one. It has also blocked commonsense responses to the climate crisis at every turn—sometimes explicitly, when regulations that would keep carbon in the ground are rejected outright, but mostly implicitly, when those kinds of regulations are not even proposed in the first place, and so-called market solutions are favored for tasks to which they are wholly unequipped.


pages: 613 words: 151,140

No Such Thing as Society by Andy McSmith

anti-communist, Ayatollah Khomeini, Berlin Wall, Big bang: deregulation of the City of London, Bob Geldof, Boris Johnson, British Empire, Brixton riot, call centre, cuban missile crisis, Etonian, F. W. de Klerk, Farzad Bazoft, feminist movement, fixed income, Francis Fukuyama: the end of history, friendly fire, full employment, glass ceiling, God and Mammon, greed is good, illegal immigration, index card, John Bercow, Kickstarter, liberal capitalism, light touch regulation, Live Aid, loadsamoney, long peace, means of production, Mikhail Gorbachev, mortgage debt, mutually assured destruction, negative equity, Neil Kinnock, Nelson Mandela, North Sea oil, Northern Rock, old-boy network, popular capitalism, Right to Buy, Ronald Reagan, Rubik’s Cube, Sloane Ranger, South Sea Bubble, spread of share-ownership, strikebreaker, The Chicago School, union organizing, upwardly mobile, urban decay, Winter of Discontent, young professional

The slush fund that the British contractor BAE set aside in Swiss and Panamanian bank accounts to pay commissions, or bribes, to various middlemen involved in the arms deal is thought to have been more than three times the amount raised by Live Aid.6 Geldof, to his credit, was quick to realize that if he was to take famine relief seriously he would have to immerse himself in the politics of world trade, because all the energy and goodwill of that summer’s day hardly made a ripple on Africa’s problems. Even so, Live Aid was one of the greatest displays of generosity that Britain has ever seen, and it is the single most lasting image of Britain in the 1980s – which might seem odd, because the decade is not thought of as a charitable one. In the USA, the 1980s is known as the ‘decade of greed’ because of the way light regulation and tax changes allowed money to pour into the bank accounts of those who were already wealthy, creating a culture in which the corrupt investor Ivan Boesky told an audience in California that ‘you can be greedy and still feel good about yourself’.7 There was a similar phenomenon in 1980s Britain, though the phrase used to sum it up was not coined by an investor but by a satirical stand-up comic, Harry Enfield.


pages: 553 words: 168,111

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

anti-communist, Asian financial crisis, automated trading system, banking crisis, barriers to entry, Bernie Madoff, 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, peak oil, Peter Thiel, pre–internet, price mechanism, profit motive, regulatory arbitrage, reserve currency, rolodex, Ronald Reagan, side project, Silicon Valley, upwardly mobile, zero-sum game

Larger government committees tried to take their control away, but the agriculture guys were not about to let it go. They fought to keep it.”) Oddly enough, the “agriculture guys” who backed the Enron loophole and thought nothing of loosening the trading rules on the energy and financial markets, did not want their sector, the agricultural sector, to be treated the same way. They believed light regulation of farm products to be very dangerous. The regulation of agricultural products, such as futures on corn, wheat, and cattle, has always been treated with extreme care, says Newsome. The reason is that the farmers have traditionally been much quicker than the nation’s energy consumers to assert themselves before Congress. “Philosophically, there’s very little reason to regulate one market differently than another.


pages: 603 words: 182,826

Owning the Earth: The Transforming History of Land Ownership by Andro Linklater

agricultural Revolution, anti-communist, Anton Chekhov, Ayatollah Khomeini, Big bang: deregulation of the City of London, British Empire, business cycle, colonial rule, Corn Laws, corporate governance, creative destruction, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, facts on the ground, Francis Fukuyama: the end of history, full employment, Gini coefficient, Google Earth, income inequality, invisible hand, James Hargreaves, James Watt: steam engine, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kibera, Kickstarter, land reform, land tenure, light touch regulation, market clearing, means of production, megacity, Mikhail Gorbachev, Mohammed Bouazizi, Monkeys Reject Unequal Pay, mortgage debt, Northern Rock, Peace of Westphalia, Pearl River Delta, plutocrats, Plutocrats, Ponzi scheme, profit motive, quantitative easing, Ralph Waldo Emerson, refrigerator car, Right to Buy, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, spinning jenny, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, trade route, transatlantic slave trade, transcontinental railway, ultimatum game, wage slave, WikiLeaks, wikimedia commons, working poor

More surprisingly, judged by the yardstick of wealth creation that Hayek preferred, his model fared worse than the system it replaced. During the twenty-five years from 1951 to 1976 when the United States labored under a business-deterring, high-taxation, heavily regulated regime, America launched no fewer than twenty-three of the largest companies in the world, three more than were created in the thirty-year Austrian period of low taxation, high rewards, and light regulation from 1976 to 2007. And after recording annual returns close to 10 percent from 1950 to 1970, Wall Street’s returns dropped to a pallid reward of 5.58 percent for the two decades from 1988 to 2008. Far from equality being bought at the expense of economic efficiency, the economy expanded faster during the very years when, as the author Robert Putnam judged it, “America was . . . more egalitarian than it had been in more than a century.”


pages: 777 words: 186,993

Imagining India by Nandan Nilekani

addicted to oil, affirmative action, Airbus A320, BRICs, British Empire, business process, business process outsourcing, call centre, clean water, colonial rule, corporate governance, cuban missile crisis, deindustrialization, demographic dividend, demographic transition, Deng Xiaoping, digital map, distributed generation, farmers can use mobile phones to check market prices, full employment, ghettoisation, glass ceiling, global supply chain, Hernando de Soto, income inequality, informal economy, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), joint-stock company, knowledge economy, land reform, light touch regulation, LNG terminal, load shedding, low cost airline, Mahatma Gandhi, market fragmentation, mass immigration, Mikhail Gorbachev, Network effects, new economy, New Urbanism, open economy, Parag Khanna, pension reform, Potemkin village, price mechanism, race to the bottom, rent control, rolodex, Ronald Reagan, school vouchers, Silicon Valley, smart grid, special economic zone, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, transaction costs, trickle-down economics, unemployed young men, upwardly mobile, urban planning, urban renewal, women in the workforce, working poor, working-age population

This sector may also be the hardest for the government to let go of, considering the central role universities are seen to play in shaping a country’s ideas, and the power that reservation has in whipping up electorates into a frenzy. But the market economy is nevertheless pushing relentlessly against old systems, urging them toward reform, and penalizing policies that fail. The question remains, however, whether we can enable reform fast enough to leverage the opportunities we now have both domestically and globally. Reform requires key, controversial steps: we need to move toward a model of light regulation, where we have an independent regulator distanced from government. The oversight of educational institutions must be transparent and allow new institutions to enter easily. An open system that welcomes private investment both from India and from abroad is essential to create institutions with ambitions to be world-class. Investments without reforms will do nothing to counter the distortions that we see today.


pages: 870 words: 259,362

Austerity Britain: 1945-51 by David Kynaston

Alistair Cooke, anti-communist, British Empire, Chelsea Manning, collective bargaining, continuous integration, deindustrialization, deskilling, Etonian, full employment, garden city movement, hiring and firing, industrial cluster, invisible hand, job satisfaction, labour mobility, light touch regulation, mass immigration, moral panic, Neil Kinnock, occupational segregation, price mechanism, rent control, reserve currency, road to serfdom, Ronald Reagan, shared worldview, stakhanovite, strikebreaker, the market place, upwardly mobile, urban planning, urban renewal, very high income, wage slave, washing machines reduced drudgery, wealth creators, women in the workforce, young professional

Down to last nappy but managed to get more dry between 12 and 2 and after 4. We froze up again. (Judy Haines) 14 February. Long queues for potatoes . . . Reduced clothing coupon 14 allowances. No wonder people steal coupons and clothes . . . Blackout so batteries for torches are scarce. (Gladys Langford) 16 February. Restrictions and arctic conditions persist . . . Several people here ignore lighting regulations and use lamps & radios at forbidden hours. (Gladys Langford) 18 February. Yesterday Selfridge’s was packed as though there was a bargain sale there. ‘Nothing else to do, nowhere to go,’ we heard a man say, obviously one of the nearly 3½ millions stood off through the fuel crisis. Today we saw men carrying their wives’ shopping baskets. (Florence Speed) 19 February. In addition to my usual winter apparel, am now wearing four woollen pullovers (three sleeveless ones under my waistcoat, one with sleeves over it).