mortgage debt

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

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

In the UK, banks create 97% of the money supply via their lending activity with the remaining amount created as cash by the Bank of England and Treasury. As shown in Figure 5.2, mortgage debt outstanding has increased from around 30% of real disposable income in 1987 to almost 100%, helping to drive up average house prices from four times disposable income per household to ten times. This of course disguises large regional variations – in more desirable areas such as London and the South East the ratio is up to twenty times (ONS, 2015c). Recent research shows that when housing costs (including mortgage debt and rents) are included in an assessment of changing living standards since 2002, over half of UK households across the working age population have seen falling or flat living standards (Clarke et al., 2016).

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Recent research shows that when housing costs (including mortgage debt and rents) are included in an assessment of changing living standards since 2002, over half of UK households across the working age population have seen falling or flat living standards (Clarke et al., 2016). Figure 5.2 House prices and mortgage debt compared to income in the UK (source: ONS, Nationwide and Bank of England; data de‹ated using 2010 prices) The impact of rising housing costs is not distributed equally across populations of course. In 2013, 1.17 million households had mortgage debts amounting to more than 4.5 times their disposable income – representing nearly one in seven (13.2%) households with mortgages (ONS, 2015a, p. 1). We turn to inequality in the next chapter.

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But before moving on to the history, it is first worth asking why policy makers and most economists did not, at least until the crisis of 2007–8, pay more attention to the divergence between mortgage debt, land and property prices and incomes. 5.3 Mortgage finance, the ‘lifecycle’ model and the role of collateral Since the 1960s up until the crisis of 2007–8, the dominant conception of the role of house purchase and mortgage debt in economic theory was the ‘lifecycle model’.5 Also described as the ‘permanent income’ hypothesis (Friedman, 1957), the theory suggests that individuals spread or smooth their consumption and savings behaviour over the entire course of their lives.

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

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

Using a longer historical pattern (based on the household-debt-to-GDP [gross domestic product] ratio), economist David Beim showed that the increase prior to the Great Recession is matched by only one other episode in the last century of U.S. history: the initial years of the Great Depression.7 From 1920 to 1929, there was an explosion in both mortgage debt and installment debt for purchasing automobiles and furniture. The data are less precise, but calculations done in 1930 by the economist Charles Persons suggest that outstanding mortgages for urban nonfarm properties tripled from 1920 to 1929.8 Such a massive increase in mortgage debt even swamps the housing-boom years of 2000–2007. The rise in installment financing in the 1920s revolutionized the manner in which households purchased durable goods, items like washing machines, cars, and furniture.

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But in Spain a law from 1909 stipulated that most Spanish home owners remain responsible for mortgage payments—even after handing over the keys to the bank. If a Spaniard was evicted from his home because he missed his mortgage payments, he could not discharge his mortgage debt in bankruptcy. He was still liable for the entire principal.1 Further, accrued penalties and the liabilities followed him the rest of his life. And bankruptcy registers made it difficult for him to lease an apartment or even get a cell phone contract.2 As a result of these laws, mortgage-debt burdens continued to squeeze Spanish households even after they were forced out of their homes. Suzanne Daley of the New York Times reported on the story of Manolo Marban, who in 2010 was delinquent on his mortgage and awaiting eviction.

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In 2011 Harvard economist and president emeritus of the National Bureau of Economic Research Martin Feldstein wrote that the “only real solution” to the housing mess was “permanently reducing the mortgage debt hanging over America.”22 Top economists who met with the president and vice president in 2011 said that the president “could have significantly accelerated the slow economic recovery if he had better addressed the overhang of mortgage debt left when housing prices collapsed.”23 In 2011 Carmen Reinhart concluded that “a restructuring of U.S. household debt, including debt forgiveness for low-income Americans, would be most effective in speeding economic growth.”24 Lessons from History There are sound microeconomic and macroeconomic reasons for government intervention to restructure household debt during a levered-losses episode.

Walk Away by Douglas E. French

Alan Greenspan, Bear Stearns, behavioural economics, business cycle, Elliott wave, forensic accounting, full employment, Home mortgage interest deduction, loss aversion, low interest rates, McMansion, mental accounting, mortgage debt, mortgage tax deduction, negative equity, New Journalism, Own Your Own Home, Richard Thaler, risk free rate, Robert Shiller, Savings and loan crisis, Tax Reform Act of 1986, the market place, transaction costs, unbiased observer, wealth creators

The data showed that a borrower ... willing to invest with a risk level associated with the S & P 500 would benefit from a 30-year mortgage.” “Effect on Net Worth of 15- and 30-Year Mortgage Term.” Journal, Association for Financial Counseling and Planning Education, 2004. “The popular press, following conventional wisdom, frequently advises that eliminating mortgage debt is a desirable goal. We show that this advice is often wrong ... mortgage debt is valuable to many individuals.” “Mortgage Debt: The Good News.” Journal of Financial Planning, September 2004. “... U.S. households that are accelerating their mortgage payments instead of saving in tax-deferred accounts are making the wrong choice ... in the aggregate, these misallocated savings are costing U.S. households as much as $1.5 billion dollars per year.”

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But these building and loan associations paid high rates to savers and so in turn the mortgage loans were at high rates. Herbert Hoover pushed for mass homeownership on a large-scale with the aid of government coordination and regulation of development. During the roaring ‘20s residential mortgage debt tripled, but “much of this financing consisted of a crazy quilt of land contracts, second and third mortgages, high interest rates and loan fees, short terms, balloon payments, and other high risk practices,” explains Weiss. The presidential election of 1928 had Secretary of the Commerce Hoover vs.

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In October of that year as the housing bubble expanded, Bush told the nation, “We’re creating ... an ownership society in this country, where more Americans than ever will be able to open up their door where they live and say, welcome to my house, welcome to my piece of property.” However, the ownership society came with a huge debt burden. Mortgage debt in the U.S. more than doubled form $6.3 trillion at the start of the decade to $14.4 trillion by the end of 2009 two years after the market crashed. Nationwide, the price of housing rose 86 percent. “The economy became governed by a new exercise in make-believe, the notion that housing prices could never fall,” wrote Peter Goodman.

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

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

With no investment in the house, none of her money is exposed to the risk that the subsequent value of the house might not be enough to pay the mortgage debt; she can never lose, but she will gain if the house appreciates by more than is needed to pay the mortgage debt. The house will become a kind of money machine for Kate; allowing her to enjoy the full upside while facing no downside. The downside will be fully borne by Aunt Claire. Banks Have Uncle Sam The relation between Kate and Aunt Claire in the example is similar to the relation between banks that are too important to fail and taxpayers. Just as Aunt Claire steps in when Kate cannot pay her mortgage debt, governments often support banks when they cannot pay their debts.

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She saves 1 percent in interest on the loan of $270,000, which amounts to $2,700 for the year. This leaves Kate with more money after paying the mortgage debt. For example, if the house subsequently increases in value by 5 percent to $315,000, we saw in Chapter 8 that Kate will be left with $34,200, a 14 percent return on her equity investment, if she borrows at 4 percent. If she borrows at 3 percent and owes only $278,100, she will instead have $36,900 left, a 23 percent return on her equity investment, after selling the house for $315,000 and paying her mortgage debt. The saving of $2,700 in interest will also soften the blow should Kate lose some of her investment, assuming that she is still “above water” and able to pay her mortgage.

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How does the situation in which Kate invests only $10,000 instead of $30,000 in the house compare to that in which she invests $30,000? If Kate borrows $290,000 for a year at 3 percent, her interest payment is $8,700, so she owes $298,700. In this case, Kate will become underwater and will be unable to pay her mortgage debt from selling the house if the house subsequently sells for less than $298,700. For example, if the house sells for $285,000, Kate will default on her mortgage debt if she borrows $290,000. In this scenario, Aunt Claire will have to pay $13,700 to make sure the bank is paid the full $298,700 that is owed. By contrast, if Kate borrows only $270,000 and puts $30,000 in as a down payment, she will absorb the entire loss without needing the guarantees.

Borrow: The American Way of Debt by Louis Hyman

Alan Greenspan, asset-backed security, barriers to entry, big-box store, business cycle, cashless society, collateralized debt obligation, credit crunch, deindustrialization, deskilling, diversified portfolio, financial engineering, financial innovation, Ford Model T, Ford paid five dollars a day, Home mortgage interest deduction, housing crisis, income inequality, low interest rates, market bubble, McMansion, mortgage debt, mortgage tax deduction, Network effects, new economy, Paul Samuelson, plutocrats, price stability, Ronald Reagan, Savings and loan crisis, statistical model, Tax Reform Act of 1986, technology bubble, transaction costs, vertical integration, women in the workforce

The federal government’s role in housing in 1971, when federal programs subsidized 30 percent of housing starts, was shockingly higher than the 4.4 percent subsidized in 1961, and, according to Nixon administration officials, “much of the increase in housing units … occur[ed] in section 235.”8 Government-sponsored mortgage debt accounted for 20 percent of the overall increase in mortgage debt in 1971.9 While in operation, Section 235 marshaled mortgage-backed securities to transform hundreds of thousands of Americans from renters to owners. Section 235 created such an upswing in housing that by 1972, the president of MBA could declare it the “principal system” for low-income housing.10 Poor Americans across the country left rented quarters for what they believed would be a true piece of the American dream.

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A third of all American families who qualified for “relief” at the height of the Great Depression landed there by losing a construction job. Dick didn’t work in construction, but his business, building automobiles, was hit just as hard. The 1920s were similar to today in terms not only of young love and mortgage debt but of all forms of debt. In fact, it was the spread of automobile debt that had given Dick his job in the first place. Automobile finance emerged after World War I as one of the hottest industries, spreading its methods in just a few years to nearly all other household durables. Vacuum cleaners, washing machines, and oil burners could all be had on the installment plan.

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The Mortgage Bankers Association rolled out the ill-named “6–6–6 program” to reassure investors that with six guiding principles formulated over six months, the real estate bond market could be disciplined within a half year.23 Even amid these crises, Americans invested approximately $1 billion in mortgage bonds in 1926. At their peak, real estate bonds funded one-quarter of all urban mortgage debt, equal in volume to the bonds of industrial corporations. Particular examples of failure could not dampen most small investors’ faith in the reason of real estate. Yet by 1927, even conservative probusiness groups such as the Rotary Club found naysayers castigating mortgage bonds in the pages of their official publications.

Underwater: How Our American Dream of Homeownership Became a Nightmare by Ryan Dezember

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", activist fund / activist shareholder / activist investor, Airbnb, Bear Stearns, business cycle, call centre, Carl Icahn, Cesare Marchetti: Marchetti’s constant, cloud computing, collateralized debt obligation, company town, coronavirus, corporate raider, COVID-19, Credit Default Swap, credit default swaps / collateralized debt obligations, data science, deep learning, Donald Trump, Home mortgage interest deduction, housing crisis, interest rate swap, low interest rates, margin call, McMansion, mortgage debt, mortgage tax deduction, negative equity, opioid epidemic / opioid crisis, pill mill, rent control, rolodex, Savings and loan crisis, sharing economy, sovereign wealth fund, transaction costs

But when the U.S. housing market collapsed in 2007, the property’s value fell far below the amount I had borrowed to buy it. Walking away was never an option. I’d signed papers promising to pay the money back and I intended to do so one way or another. In case my moral compass ever needed a shake, laws in Alabama, as in many states, allow lenders to pursue the difference between the mortgage debt on a property and what it fetches in a foreclosure sale. For much of the next decade, that number kept growing. At one point, it would have been nearly $70,000. That was more than half of what we’d borrowed to buy the place. When I bought the house, I was a newlywed three years out of college who believed I had achieved a signature goal of most young Americans.

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A real estate agent in Alabama with whom I had been consulting said that if I fixed the house up and put it on the market in spring, when buyers were out and the yard was in bloom, I might be able to get $115,000 for it. That was $22,500 less than I’d paid, but it would be enough to wipe out the mortgage debt and cover most of the sale expenses. At the end of March I took a week off work, packed a rental car with tools and a sleeping bag, and headed south. 2 THE CONDO GAME Alabama’s beaches are among the most alluring in America. They are made of tiny bits of Appalachian quartz, glistening mountain dander that washed down to the Gulf of Mexico on glacial melt after the last Ice Age.

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Interest rates declined. A decades-long boom in homeownership and home prices ensued. By the time I was born, in 1980, to the proud new owners of a small postwar Cape Cod in a woodsy beach town in suburban Cleveland, nearly two-thirds of Americans were homeowners. They had taken on more than $1 trillion of mortgage debt to get there. But that was nothing compared with what was coming. In 1978, a bond trader named Lewis Ranieri was assigned to the nascent mortgage desk at the venerable Wall Street investment firm Salomon Brothers. The housing market was never the same. Ranieri was one of the “fat guy” mortgage traders who engaged in the trading floor feeding frenzies with sacks of cheeseburgers and tubs of guacamole portrayed by Michael Lewis in his chucklesome Wall Street tell-all Liar’s Poker.

Panderer to Power by Frederick Sheehan

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

Household net worth had risen $2.8 billion from stock gains in 1995, $2.5 billion in 1996, $3.8 billion in 1997, $3.3 billion in 1998, and $4.75 billion in 1999.1 This does not count stock-option cash outs or the contribution of house sales and home equity. In the 1990s, total mortgage debt (commercial, residential, and farm) rose an average of $268 billion a year.2 In 1995, total mortgage debt increased $233 billion, and home mortgage debt increased $153 billion.3 1 Gloom, Boom & Doom Report, September 2000. 2 Doug Noland, “Credit Bubble Bulletin,” Prudent Bear Web site, March 9, 2007, p. 12. 3 Federal Reserve Flow-of-Funds Accounts, Z-1. 265 That was when Larry Lindsey told the FOMC, “[T]here has been a lot of easing of credit terms.

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The stock market bubble was needed as a supplement. In 2000, home mortgage debt rose $380 billion.4 Stock market collateral could, in part, explain how households were able to buy more and higher-priced houses. By 2001, though, the mirage of Internet wealth was collapsing. Median household incomes were falling (after having risen between 1994 and 2000),5 and layoffs were rising. Yet, Americans acquired $506 billion of new mortgage debt. By most standards, 2002 was an even worse year for Americans (stock prices and incomes continued to fall), but they added an additional $708 billion of mortgage debt. Greenspan’s Attempt to Block Fannie and Freddie The backbones of the government effort to stoke credit were Fannie Mae and Freddie Mac.

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In the same speech, Bernanke went on to discuss other data that should have caused a stir: “[T]he expansion of subprime lending has contributed importantly to the substantial increase in the overall use of mortgage credit. From 1995 to 2004, the share of households with mortgage debt increased 17 percent, and in the lowest income quintile, the share of households with mortgage debt rose 53 percent.” Reading the transcript, it appears Bernanke considered this to be good news. He did advise “greater financial literacy” for “borrowers with lower incomes and education levels.”19 The former South Carolina seventh-grade spelling bee champion often urged self-improvement. 15 Paul Muolo and Matthew Padilla, Chain of Blame, How Wall Street Caused the Mortgage and Credit Crisis (Hoboken, N.J.: Wiley, 2008), pp. 170–171.

The greatest trade ever: the behind-the-scenes story of how John Paulson defied Wall Street and made financial history by Gregory Zuckerman

1960s counterculture, Alan Greenspan, banking crisis, Bear Stearns, collapse of Lehman Brothers, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, financial engineering, financial innovation, fixed income, index fund, Isaac Newton, Jim Simons, junk bonds, Larry Ellison, Long Term Capital Management, low interest rates, margin call, Mark Zuckerberg, Menlo Park, merger arbitrage, Michael Milken, mortgage debt, mortgage tax deduction, Ponzi scheme, Renaissance Technologies, rent control, Robert Shiller, rolodex, short selling, Silicon Valley, statistical arbitrage, Steve Ballmer, Steve Wozniak, technology bubble, zero-sum game

Paulson’'s team would pick a hundred or so mortgage bonds for the CDOs, the bankers would keep some of the selections and replace others, and then the bankers would take the CDOs to ratings companies to be rated. Paulson would buy CDS insurance on the mortgage debt and the investment banks would find clients with bullish views on mortgages to take the other side of the trades. This way, Paulson could buy protection on $1 billion or so of mortgage debt in one fell swoop. Paulson and his team were open with the banks they met with to propose the idea. “"We want to ramp it up,”" Pellegrini told a group of Bear Stearns bankers, explaining his idea.

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In 1758, Benjamin Franklin wrote: “"The second vice is lying; the first is running in debt.”"1 The dangers of borrowing were brought home in the Great Depression when a rash of businesses went bankrupt under the burden of heavy debt, scarring a generation. In the 1950s, more than half of all U.S. households had no mortgage debt and almost half had no debt at all. Home owners sometimes celebrated paying off their loans with mortgage-burning parties, setting loan documents aflame before friends and family. The practice continued into the 1970s; Archie Bunker famously held such a get-together in an episode of All in the Family.

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Instead, most traders prefer “"positive”" carry trades, or those where profits are immediate and clear. Banks, for example, borrow money at low interest rates and lend it out at higher rates. A borrower may go belly-up, of course, but on paper the move looks like a winner. There didn’'t seem to be a more surefire positive-carry trade than selling insurance on even risky mortgage debt. Insurance companies like American International Group, huge global banks, and countless investors locked in instant gains from the premiums that Paulson and other bears paid for their CDS insurance. These profits sometimes meant the difference between hitting a profit goal and missing out on a huge bonus.

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

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

In subsequent months, Duhon heard on the grapevine that other banks were starting to do CDS deals with mortgage debt, and she wondered how the other banks had coped with the data uncertainties that so worried her and Varikooty. Had they found a better way to track the correlation issue? Did they have more experience with dealing with mortgages? She had no way of finding out. Because the CDS market was unregulated, the details of deals weren’t available, and she had no good intel sources at the other banks. Like most of those working on Demchak’s team, she had spent her entire career at J.P. Morgan. The team did only one more BISTRO deal with mortgage debt, a few months later, worth $10 billion.

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Dimon declared to his staff, and there was one sector in particular in which the bank really needed to catch up: mortgage finance. J.P. Morgan should have been able to raise its profile in the repackaging of mortgage debt quickly. Inside the vast, sprawling empire of JPMorgan Chase sat Chase Home Finance, one of America’s largest home loan mortgage originators. But though the volume of mortgages Chase had offered had surged as the housing boom took off, they were being sold to Lehman Brothers, Bear Stearns, and others for their mortgage CDO and CDS assembly lines. That was partly because the J.P. Morgan side had less experience with mortgage debt than with corporate loans, and was so leery about the risks involved with BISTRO-like products made from mortgages.

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He was a stickler for detail who loved to get things right, and that stubborn scrupulousness sometimes infuriated his colleagues, who were urgent to make deals. But Demchak always defended Varikooty. “Once, people shouted at Krishna and made him upset, and Demchak just went ballistic,” one of his teammates later recalled. Varikooty’s judgment on the mortgage debt was clear: he could not see a way to track the potential correlation of defaults with any level of confidence. Without that, he declared, no precise estimate of the risks of default in a bundle overall could be made. If defaults on mortgages were uncorrelated, then the BISTRO structure should be safe for mortgage risk, but if they were highly correlated, it might be catastrophically dangerous.

Aftershock: The Next Economy and America's Future by Robert B. Reich

Abraham Maslow, Alan Greenspan, Berlin Wall, business cycle, carbon tax, declining real wages, delayed gratification, Doha Development Round, endowment effect, Ford Model T, full employment, George Akerlof, high-speed rail, Home mortgage interest deduction, Hyman Minsky, illegal immigration, income inequality, invisible hand, job automation, junk bonds, labor-force participation, Long Term Capital Management, loss aversion, low interest rates, Michael Milken, military-industrial complex, mortgage debt, new economy, offshore financial centre, Ralph Nader, Ronald Reagan, school vouchers, sovereign wealth fund, The Theory of the Leisure Class by Thorstein Veblen, Thorstein Veblen, too big to fail, We are all Keynesians now, World Values Survey

But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped. The borrowing had taken the form of mortgage debt on homes and commercial buildings, consumer installment debt, and foreign debt. Eccles understood that this debt bubble was bound to burst. And when it did, consumer spending would shrink. And so it did. When there were no more poker chips to be loaned on credit, debtors were forced to curtail their consumption.

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The drop in savings had its mirror image in household debt (including mortgages), which rose from 55 percent of household income in the 1960s to an unsustainable 138 percent by 2007. Ominously, much of this debt was backed by the rising market value of people’s homes. The years leading up to the Great Depression saw a similar pattern. Between 1913 and 1928, the ratio of private credit to the total national economy nearly doubled. Total mortgage debt was almost three times higher in 1929 than in 1920. Eventually, in 1929, as in 2008, there were “no more poker chips to be loaned on credit,” in Eccles’s words. And “when … credit ran out, the game stopped.” A third parallel: In both periods, richer Americans used their soaring incomes and access to credit to speculate in a limited range of assets.

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By 2007, as I said earlier, the typical American household owed 138 percent of its after-tax income. Americans borrowed from everywhere. Credit card solicitations flooded mailboxes; many American wallets bulged with dozens of cards, all amassing larger and larger debt loads. Auto loans were easy to come by. Students and their families went deep into debt to pay the costs of college. Mortgage debt exploded. And as housing values continued to rise, homes doubled as ATMs. Consumers refinanced their homes with even larger mortgages and used their homes as collateral for additional loans. As long as housing prices continued to rise, it seemed a painless way to get money (in 1980 the average home sold for $64,600; by 2006 it went for $246,500).

Debtor Nation: The History of America in Red Ink (Politics and Society in Modern America) by Louis Hyman

Alan Greenspan, asset-backed security, bank run, barriers to entry, Bretton Woods, business cycle, business logic, card file, central bank independence, computer age, corporate governance, credit crunch, declining real wages, deindustrialization, diversified portfolio, financial independence, financial innovation, fixed income, Gini coefficient, Glass-Steagall Act, Home mortgage interest deduction, housing crisis, income inequality, invisible hand, It's morning again in America, late fees, London Interbank Offered Rate, low interest rates, market fundamentalism, means of production, mortgage debt, mortgage tax deduction, p-value, pattern recognition, post-Fordism, profit maximization, profit motive, risk/return, Ronald Reagan, Savings and loan crisis, Silicon Valley, statistical model, Tax Reform Act of 1986, technological determinism, technology bubble, the built environment, transaction costs, union organizing, white flight, women in the workforce, working poor, zero-sum game

The modern debt regime relied on this convertibility, not only to transform installment contracts into personal loans or credit card debts into home equity plans, but to turn the wages of labor into debt repayment as well. The transformation of labor into capital, and debt into other debt, is the crux of how the credit economy operates. To cordon off these transformations one from another, as we do when we, for instance, sanctimoniously discuss “non-mortgage debt” separately from “mortgage debt,” obscures the indispensable commutability of capital. For lenders, transforming capital into debt was the essence of their business. Capital ultimately comes from somewhere. When we need money, most of us wonder only if we can get it, and aside from the person who gives us the money, do not really care where the money comes from.

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The federal government’s role in housing in 1971, when federal programs subsidized 30 percent of housing starts, was shockingly higher than in 1961, when only 4.4 percent did, with “much of the increase in housing units . . . occur[ing] in section 235,” according to Nixon administration officials.16 Government-sponsored mortgage debt accounted for 20 percent of the overall increase in mortgage debt in 1971.17 While in operation, the Section 235 marshaled new financial instruments to transform hundreds of thousands of Americans from renters to owners. Section 235 created such an upswing in housing that by 1972 the president of the Mortgage Bankers’ Association could pronounce it the “principal system” for low-income housing.18 One prominent mortgage banker declared that Section 235 “answered the cry, ‘Burn, baby, burn’ with ‘Build, baby, build!”

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While these two events, the Tax Reform Act of 1986 and the first credit card asset-backed security, had nothing to do with one another, they both pushed all forms of consumer debt, in unexpected ways, toward complete interchangeability. Though the Tax Reform Act sought to differentiate credit card debt from mortgage debt, market forces and financial innovation like asset-backed securities pushed them back together. By the middle of the 1980s, credit cards and other non-mortgage debts were starting to be seen as something not to be encouraged. Owning a house, arguably, served a valuable social function by rooting home owners in a community, but auto loans, much less credit cards, did not. Yet taxpayers could deduct the interest that they paid on any and all consumer debt.

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

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

Members were bought out, becoming rich in the process, while new borrowers faced higher interest rates. Eventually many of these building societies — including Northern Rock — ended up undertaking the kind of sub-prime lending activities that caused the crisis. Throughout the 1980s, banks and former building societies issued millions of pounds worth of mortgage debt to allow people to purchase their own homes — many used this debt to purchase their council homes. This lending surge led to an increase in the UK’s broad money supply, which increased from around 40% of GDP in 1985 to 85% in 1990, mirrored by an increase in the amount of credit provided by financial institutions.40 There was now a wall of money chasing after the same amount of housing stock — and the inevitable consequence of such a scenario is house price inflation.

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Thatcher may have talked about freedom, but she created a society based on unfreedom: the non-choice between work at a wage below what one deserves and destitution. Similarly, Thatcher’s government never actually tackled inflation or the money supply, despite its monetarist rhetoric. The broad money supply increased dramatically over the course of the 1980s because of rising mortgage debt. Instead, they focused on curbing wage-inflation by cutting the size of the state and restricting collective bargaining. Asset prices — mainly houses and other financial assets — rose substantially under Thatcher, even as consumer price inflation was brought under control. The ideological battle between individual freedom and collective justice provided a smokescreen that allowed the neoliberals to stratify British society — co-opting middle earners by turning them into mini-capitalists and creating a margin-alised class of poorly-paid, precarious, and heavily indebted workers beneath them.

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New, giant international banks, based mainly in Wall Street and the City of London, were only too happy to oblige. These banks placed British and American mortgages at the heart of the global financial system by turning them into financial securities that could be traded on financial markets — a process called securitisation.8 The securitisation of Anglo-American mortgage debt was central to both the long pre-crash boom and the swift collapse of the banking system in 2008. The American aspect of this equation was many times larger than the Anglo part, and far more important to the global financial system, but relative to the size of their respective economies, both experienced a surge in securitisation.

The End of Wall Street by Roger Lowenstein

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

The massive fiscal remedies evidenced both the failure of an ideology and the eclipse of Wall Street’s golden age. For years, American financiers had gaudily assumed more power, more faith in their ability to calculate—and inoculate themselves against—risk. As a consequence of this faith, banks and investors had plied the average American with mortgage debt on such speculative and unthinking terms that not just America’s economy but the world’s economy ultimately capsized. The risk grew from early in the decade, when little-known lenders such as Angelo Mozilo began to make waves writing subprime mortgages. Before long, Mozilo was to proclaim that even Americans who could not put money down should be “lent” the money for a home, and not long after that, Mozilo made it happen: homes for free.

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As a percentage of annual volume, subprimes now topped 16 percent—up from a mere 8 percent a couple of years earlier and hardly anything in the ’90s.4 The subprime onslaught was part of a broader and no less remarkable mortgage wave. Over those same two years, following the dot-com crash in 2001, total outstanding mortgage debt grew from $6 trillion to nearly $8 trillion—an extraordinary rise in a stable population.5 The most plausible explanation for this sudden surge lies in the country’s remarkably forgiving credit markets. Starting the week after New Year’s, 2001, the Fed lowered short-term interest rates thirteen times until, finally, in June 2003, rates touched 1 percent—their lowest level since the John F.

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To paraphrase the financial journalist Michael Lewis, synthetic CDOs had as much to do with real estate as fantasy football had to do with the NFL.19 They built no houses and painted no walls; they simply multiplied the Street’s gamble. Thanks to these derivative ventures, far more money was wagered on mortgage debt than the total of such debt in existence. In some cases, a single mortgage bond was referenced in dozens of synthetics.20 It was as if Wall Street, in all its mad, Strangelovian genius, had a found a way to clone armies of securities from a single strand of mortgage DNA. The subsurface multiplication of CDO exposure fooled many a forecaster.

Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism by Kevin Phillips

"World Economic Forum" Davos, Alan Greenspan, algorithmic trading, asset-backed security, bank run, banking crisis, Bear Stearns, Bernie Madoff, Black Swan, Bretton Woods, BRICs, British Empire, business cycle, buy and hold, collateralized debt obligation, computer age, corporate raider, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency peg, diversification, Doha Development Round, energy security, financial deregulation, financial engineering, financial innovation, fixed income, Francis Fukuyama: the end of history, George Gilder, Glass-Steagall Act, housing crisis, Hyman Minsky, imperial preference, income inequality, index arbitrage, index fund, interest rate derivative, interest rate swap, Joseph Schumpeter, junk bonds, Kenneth Rogoff, large denomination, Long Term Capital Management, low interest rates, market bubble, Martin Wolf, Menlo Park, Michael Milken, military-industrial complex, Minsky moment, mobile money, money market fund, Monroe Doctrine, moral hazard, mortgage debt, Myron Scholes, new economy, oil shale / tar sands, oil shock, old-boy network, peak oil, plutocrats, Ponzi scheme, profit maximization, prosperity theology / prosperity gospel / gospel of success, Renaissance Technologies, reserve currency, risk tolerance, risk/return, Robert Shiller, Ronald Reagan, Satyajit Das, Savings and loan crisis, shareholder value, short selling, sovereign wealth fund, stock buybacks, subprime mortgage crisis, The Chicago School, Thomas Malthus, too big to fail, trade route

In 1977, Time saluted another symptom, credit card growth, with a lengthy analysis of how “the Affluent Society has become the Credit Society, and an insistence on buying only what can be paid for in cash seems as outmoded as a crew cut.”4 Since 1950, the U.S. consumer installment debt outstanding had soared twelvefold to roughly $179 billion, omitting mortgage debt, which had risen comparably. Lacy Hunt, an economist at Philadelphia’s Fidelity Bank, enthused that “the ability of the consumer to take on more debt will be the underpinning of the economy in 1977. This year is the year of consumer credit.”5 The mortgage debt that so impressed Greenspan, along with the credit card volume saluted by Hunt, slowed down as interest rates soared from 1979 to 1981, and it’s probably fair to say that the deep 1980-82 recession squeezed the debt hangover out of the U.S. economy while it hammered down the inflation rate.

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Foreclosing on the American Dream: Mortgage Finance and Housing The fifth vehicle of the financial sector’s mega-expansion, hardly a great disclosure, can be treated quickly, in light of the great 2000-2006 media focus on housing, mortgage finance, and related securitization. The buildup was huge, just like the eventual 2007-2008 implosion. As Figure 2.6 on page 51 shows, between the first quarter of 2001 and the first quarter of 2007, total mortgage debt in the United States doubled from $4.92 trillion to $9.96 trillion. As for mortgage origination, that had tripled from 1997 levels to reach a total of $2.5 trillion in the year 2006 alone (see pp. 112-119). United States banks, in the meantime, were moving into mortgage finance in a big way. Figure 2.2 on page 32 shows the mushrooming of the percentage of total bank earning assets that fell into the mortgage-related category.

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And on top of that, between 2001 and 2006, an unprecedented number of Americans used their homes as ATMs, turning huge chunks of residential equity into borrowed, but spendable, cash. Harvard economist Martin Feldstein, a former Republican chairman of the White House Council of Economic Advisers, calculated in 2007 that over “the past five years, the value of U.S. home mortgage debt has increased by nearly $3 trillion. In 2004 alone, it increased by almost $1 trillion.” He went on: “Net mortgage borrowing that year not used [my italics] for the purchase of new homes amounted to nearly $600 billion, or almost 7 percent of disposable personal income.”12 In short, borrowing against homes enabled stressed consumers to keep consuming.

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

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

The ratio of residential loans to GDP in the European Union as a whole was 36.4 in 2007; the equivalent figures for Ireland, Spain, the United Kingdom and the United States were 71.4, 59.8, 74.8 and 63.4 respectively.49 The ratio of mortgage debt to GDP in these four countries was higher than in any other country in the world, and they all had a relatively high proportion of lower-income households with mortgages.50 In the United States, mortgage debt climbed from $5.3 trillion in 2001 to $10.5 trillion in 2007 and mortgage debt per household rose from $91,500 in 2001 to $149,500 in 2007.51 To put this in context, mortgage debt in the United States rose almost as much in 6 years as it had in the period from 1776 to 2000! Similarly, in Ireland, the total mortgage debt went from €34 billion in 2001 to €123 billion in 2007, which meant that mortgage debt per household increased from about €27,000 to €87,000.52 How was such a large increase in mortgage debt possible?

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Similarly, in Ireland, the total mortgage debt went from €34 billion in 2001 to €123 billion in 2007, which meant that mortgage debt per household increased from about €27,000 to €87,000.52 How was such a large increase in mortgage debt possible? As discussed above, banks and mortgage lenders substantially reduced their lending standards. The simplest way of doing this was to relax the down payment constraint on mortgages – the loan-to-value ratio. This enabled creditconstrained lower-income households to enter the housing market for the first time.53 In the case of the United States, the subprime sector grew from 7.6 per cent of mortgage originations in 2001 to 23.5 per cent in 2006.54 The median loan-to-value ratio of subprime mortgages originating in the United States rose from 90 per cent in 2005 to 100 per cent in the first half of 2007.55 When comparing countries that experienced a housing bubble with those that did not, the relaxation of lending standards and securitisation is the common factor: it occurred in the United States, the United Kingdom, Ireland and Spain, but not to anywhere near the same extent in other major economies.56 Homes had become marketable objects of speculation and the banking system was supplying seemingly unlimited amounts of leverage to potential speculators.

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Few houses had been built during the war because industry had been reoriented towards munitions, resulting in a temporary shortage of new homes. After the war, construction increased to plug this gap: as Figure 7.1 shows, in 1925 work started on 937,000 new houses, up from 247,000 in 1920. This was accompanied by a nationwide increase in house prices of around 40 per cent.11 The primary source of finance for these new homes was mortgage debt, which was rapidly expanded by commercial banks, insurance companies and savings associations. In contrast to later housing booms, however, the easing of credit was relatively minor, and by today’s standards the mortgage terms were very restrictive. The boom was instead driven by a combination of easier access to existing credit and increased demand.12 Mortgages allowed investors to speculate on housing using credit, but many mortgages were also packaged into securities, thereby increasing their marketability.

The Two-Income Trap: Why Middle-Class Parents Are Going Broke by Elizabeth Warren, Amelia Warren Tyagi

activist fund / activist shareholder / activist investor, business climate, Columbine, declining real wages, equal pay for equal work, feminist movement, financial independence, labor-force participation, late fees, low interest rates, McMansion, mortgage debt, new economy, New Journalism, payday loans, restrictive zoning, Savings and loan crisis, school choice, school vouchers, telemarketer, urban sprawl, women in the workforce

Today’s mothers are no longer working to get ahead; now they must work just to keep up. Somewhere along the way, they fell into a terrible trap. Out of the Housing Trap? Can families extract themselves from the two-income housing trap? We could make all the obvious suggestions here. Families should “downshift,” taking on no more mortgage debt than they can afford. If that means renting for another ten years or living in a neighborhood with lousy schools, well, that’s just too bad. This advice would certainly be sensible from a financial point of view. The problem is that families don’t find it particularly compelling. The experts have been dispensing these words of wisdom for at least a decade with no discernible effect, and we’re pretty sure that adding our own voices to the chorus would be useless.

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Just at the time when parents got caught in a vicious bidding war for middle-class housing, just as the cost of college tuition and health insurance shot into the stratosphere, just as layoffs increased and the divorce rate jumped, a new player appeared on the scene. A newly deregulated lending industry emerged, eager to lend a few bucks whenever the family came up short. Pick up almost any newspaper, and there will be a story about America’s most widespread addiction: the insatiable hunger for debt. Every year for the past decade, mortgage debt has set a new record.7 Home equity loans grew even faster, increasing by over 150 percent in just four years.8 And no one would dare leave home without a fistful of those little plastic cards. The news media rarely give any explanation for why all that debt piled up, leaving the reader to infer that the debt explosion is some sort of inevitable by-product of today’s moral and economic climate.

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The floodgates were opened, and families could get all the mortgage money they ever dreamed of to bid on that precious home in the suburbs—even if the price tag was more than they could realistically afford. Competition for houses in good neighborhoods has always been stiff, and overloading on mortgage debt to purchase a better home has long posed a temptation for young families. A generation ago, however, it simply wasn’t possible to give in to that temptation; mortgage lenders didn’t allow it. But today the game is different. It has become routine for lenders to issue unmanageable mortgages. The best evidence comes from the mortgage industry itself.

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

Affordable Care Act / Obamacare, Alan Greenspan, algorithmic trading, Andrei Shleifer, asset-backed security, availability heuristic, bank run, banking crisis, behavioural economics, Black Monday: stock market crash in 1987, Black-Scholes formula, bonus culture, break the buck, Bretton Woods, call centre, Carmen Reinhart, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, computerized trading, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Graeber, diversification, diversified portfolio, Edmond Halley, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, eurozone crisis, family office, financial deregulation, financial engineering, financial innovation, fixed income, Flash crash, Google Glasses, Gordon Gekko, high net worth, housing crisis, Hyman Minsky, impact investing, implied volatility, income inequality, index fund, information asymmetry, Innovator's Dilemma, interest rate swap, Kenneth Rogoff, Kickstarter, late fees, London Interbank Offered Rate, Long Term Capital Management, longitudinal study, loss aversion, low interest rates, margin call, Mark Zuckerberg, McMansion, Minsky moment, money market fund, mortgage debt, mortgage tax deduction, Myron Scholes, negative equity, Network effects, Northern Rock, obamacare, payday loans, peer-to-peer lending, Peter Thiel, principal–agent problem, profit maximization, quantitative trading / quantitative finance, railway mania, randomized controlled trial, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Savings and loan crisis, short selling, Silicon Valley, Silicon Valley startup, Skype, South Sea Bubble, sovereign wealth fund, statistical model, subprime mortgage crisis, tail risk, Thales of Miletus, the long tail, transaction costs, Tunguska event, unbanked and underbanked, underbanked, Vanguard fund, web application

Buying a house is easily the largest transaction of most people’s lives. The aggregate value of property held by American households in the peak house-price year of 2006 was $22.7 trillion, their biggest single asset by a wide margin (pension-fund reserves were next, at $12.8 trillion). The amount of mortgage debt in the United States almost doubled between 2001 and 2007, to $10.5 trillion. In Britain the sum total of every residential property in 2012 was a shade under £6 trillion, which (roughly) works out at an average of £96,500 for every person in the country. Globally, the Economist’s most recent best guess was that residential property in the rich world as a whole was worth about 126 percent of the rich countries’ combined GDP in 2010.

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Now politicians are looking at the way students are being funded through college and finding that it looks less and less sustainable. At a time when American households are paying down debt, student loans are the only form of consumer borrowing that has gone up since 2008. The total amount of student debt outstanding in the United States is now above $1 trillion. Only mortgage debt is bigger. Both the number of student borrowers and the average loan balance increased by 70 percent between 2004 and 2012. The Congressional Budget Office reckons that the government will loan students another $1.4 trillion over the next decade. This growth has been driven by a number of factors.

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Mortgage growth was driven by the less creditworthy borrower.4 Once in their homes, households could unlock yet more credit by borrowing against the equity. A 2013 study by the Federal Reserve Bank of New York showed that on average for every 1 percent rise in house prices, home owners increased their mortgage debt by 1 percent. As fast as the value of their equity rose, home owners turned it into debt.5 All that has changed. Mortgages and equity withdrawal are no longer the freely available options they once were. Other forms of credit (except for student loans) are also constrained. Between September 2008 and September 2012, American household debt dropped by 11 percent, to $11.3 trillion, partly because of write-offs, partly because of greater saving, and partly because of tighter credit standards.

Slowdown: The End of the Great Acceleration―and Why It’s Good for the Planet, the Economy, and Our Lives by Danny Dorling, Kirsten McClure

"World Economic Forum" Davos, Affordable Care Act / Obamacare, Anthropocene, Berlin Wall, Bernie Sanders, Boeing 747, Boris Johnson, British Empire, business cycle, capital controls, carbon tax, clean water, creative destruction, credit crunch, Donald Trump, drone strike, Elon Musk, en.wikipedia.org, Extinction Rebellion, fake news, Flynn Effect, Ford Model T, full employment, future of work, gender pay gap, global supply chain, Google Glasses, Great Leap Forward, Greta Thunberg, Henri Poincaré, illegal immigration, immigration reform, income inequality, Intergovernmental Panel on Climate Change (IPCC), Internet of things, Isaac Newton, It's morning again in America, James Dyson, Jeremy Corbyn, jimmy wales, John Harrison: Longitude, Kickstarter, low earth orbit, Mark Zuckerberg, market clearing, Martin Wolf, mass immigration, means of production, megacity, meta-analysis, military-industrial complex, mortgage debt, negative emissions, nuclear winter, ocean acidification, Overton Window, pattern recognition, Ponzi scheme, price stability, profit maximization, purchasing power parity, QWERTY keyboard, random walk, rent control, rising living standards, Robert Gordon, Robert Shiller, Ronald Reagan, School Strike for Climate, Scramble for Africa, sexual politics, Skype, Stephen Hawking, Steven Pinker, structural adjustment programs, Suez crisis 1956, the built environment, Tim Cook: Apple, time dilation, transatlantic slave trade, trickle-down economics, very high income, wealth creators, wikimedia commons, working poor

The Federal Reserve of New York publishes quarterly figures on home loans. Its most recent series began in 2003 when the total mortgage debt of U.S. households stood at just below $5 trillion. As house and apartment prices both rose, as more were built to be purchased with debt, and as the population of the United States continued to rise, mortgage debt continued to grow and grow, at first at an accelerating pace. The acceleration dampened a little in early 2004, but by the autumn of that year outstanding U.S. household mortgage debts had passed the $6 trillion mark. More households were taking out larger loans, much larger than the ones that other people were paying off, to the tune of around $200 billion net a quarter being added to the national mortgage bill.

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More households were taking out larger loans, much larger than the ones that other people were paying off, to the tune of around $200 billion net a quarter being added to the national mortgage bill. During 2005 the increases in U.S. mortgage debt grew, the acceleration increased, and the $7 trillion mark was passed in the autumn of that year. By spring 2006 over $300 billion was being added each quarter, and the $8 billion threshold was breached in autumn 2006. Growth in new loans slowed slightly then, but accelerated for one final burst upward in spring 2007. The $9 trillion mark was reached in autumn 2007, but by then a fundamental change was afoot. 8. U.S. mortgage debt, 2003–18 (billions of dollars). (Data adapted from the Federal Reserve Bank of New York [US], “Quarterly Report on Household Debt and Credit [HHD_C_Report_2018Q3],” retrieved from the Center for Microeconomic Data, accessed 28 December 2018, https://www.newyorkfed.org/microeconomics/databank.html.)

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When there is great economic inequality, trying to be or stay rich often appears the best aim to have. But only a small minority can ever be rich. It is not that difficult to build a house or an apartment; human beings have been doing it for a very long time. It is, however, hard to control speculation and inflation. Just after the Second World War, in 1949, all outstanding U.S. mortgage debt, including the borrowings of landlords as well as those of households, stood at only $54 billion.12 By 1953 it had more than doubled, to $112 billion. It doubled again to $227 billion by 1960, and again to $450 billion by 1969. It hit $1 trillion in 1977, $2 trillion in 1984, $4 trillion in 1992, and $8 trillion in 2002.

J.K. Lasser's Your Income Tax by J K Lasser Institute

accelerated depreciation, Affordable Care Act / Obamacare, airline deregulation, asset allocation, book value, business cycle, collective bargaining, distributed generation, employer provided health coverage, estate planning, Home mortgage interest deduction, independent contractor, intangible asset, medical malpractice, medical residency, money market fund, mortgage debt, mortgage tax deduction, passive income, Ponzi scheme, profit motive, rent control, Right to Buy, telemarketer, transaction costs, urban renewal, zero-coupon bond

See Treasury Regulation Section 1.1038-2 for further details. 31.13 Foreclosure on Mortgages Other Than Purchase Money If you, as a mortgagee (lender), bid in on a foreclosure sale to pay off a mortgage that is not a purchase money mortgage, your actual financial loss is the difference between the unpaid mortgage debt and the value of the property. For tax purposes, however, you may realize a capital gain or loss and a bad debt loss that are reportable in the year of the foreclosure sale. Your bid is treated as consisting of two distinct transactions: - - - - - - - - - - Planning Reminder Voluntary Conveyance Instead of forcing you to foreclose, the mortgagor may voluntarily convey the property to you in consideration for your cancelling the mortgage debt. Your loss is the amount by which the mortgage debt plus accrued interest exceeds the fair market value of the property.

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The basis allocation rules for determining gain on a bargain sale apply even if the annual deduction ceilings (14.17) bar a deduction in the year of the donation and in the five-year carryover period. EXAMPLE The Hodgdons contributed real estate valued at $3.9 million but subject to mortgage debt of $2.6 million. The IRS treated the mortgage debt as sales proceeds and figured gain based on the difference between the debt and the portion of basis allocated to the sale element. The Hodgdons claimed that the basis allocation rule, which increased the amount of their gain, should not apply. Earlier in the year, they had made another donation that used up their charitable deduction ceiling for that year as well as for the following five-year carryover period.

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Note: If the property had been Jones’s principal residence, the exclusion for qualified principal residence indebtedness (11.8) would be available and he would not have to report the $12,000 income from the debt cancellation as income on his return. 31.10 Restructuring Mortgage Debt Rather than foreclose on a mortgage, a lender (mortgagee) may be willing to restructure the mortgage debt by cancelling either all or part of the debt. As a borrower (mortgagor), do not overlook the tax consequences of the new debt arrangement. If the lender agrees to a “workout,” under which part of your loan principal is reduced as part of a loan modification, or if you pay off the loan early in return for a “discount” that reduces the debt, and you keep the collateral, the reduction or discount is canceled debt, reportable as ordinary income (cancellation of debt income) unless an exception applies.

J.K. Lasser's Your Income Tax 2014 by J. K. Lasser

accelerated depreciation, Affordable Care Act / Obamacare, airline deregulation, asset allocation, book value, business cycle, collective bargaining, distributed generation, employer provided health coverage, estate planning, Home mortgage interest deduction, independent contractor, intangible asset, medical malpractice, medical residency, mortgage debt, mortgage tax deduction, obamacare, passive income, Ponzi scheme, profit motive, rent control, Right to Buy, telemarketer, transaction costs, urban renewal, zero-coupon bond

See Treasury Regulation Section 1.1038-2 for further details. 31.13 Foreclosure on Mortgages Other Than Purchase Money If you, as a mortgagee (lender), bid in on a foreclosure sale to pay off a mortgage that is not a purchase money mortgage, your actual financial loss is the difference between the unpaid mortgage debt and the value of the property. For tax purposes, however, you may realize a capital gain or loss and a bad debt loss that are reportable in the year of the foreclosure sale. Your bid is treated as consisting of two distinct transactions: - - - - - - - - - - Planning Reminder Voluntary Conveyance Instead of forcing you to foreclose, the mortgagor may voluntarily convey the property to you in consideration for your cancelling the mortgage debt. Your loss is the amount by which the mortgage debt plus accrued interest exceeds the fair market value of the property.

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Basis allocation applies even if a deduction is barred by the annual ceiling The basis allocation rules for determining gain on a bargain sale apply even if the annual deduction ceilings (14.17) bar a deduction in the year of the donation and in the five-year carryover period. EXAMPLE The Hodgdons contributed real estate valued at $3.9 million but subject to mortgage debt of $2.6 million. The IRS treated the mortgage debt as sales proceeds and figured gain based on the difference between the debt and the portion of basis allocated to the sale element. The Hodgdons claimed that the basis allocation rule, which increased the amount of their gain, should not apply. Earlier in the year, they had made another donation that used up their charitable deduction ceiling for that year as well as for the following five-year carryover period.

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Note: If the property had been Jones’s principal residence, the exclusion for qualified principal residence indebtedness (11.8) would be available and he would not have to report the $12,000 income from the debt cancellation as income on his 2013 return. 31.10 Restructuring Mortgage Debt Rather than foreclose on a mortgage, a lender (mortgagee) may be willing to restructure the mortgage debt by cancelling either all or part of the debt. As a borrower (mortgagor), do not overlook the tax consequences of the new debt arrangement. If the lender agrees to a “workout,” under which part of your loan principal is reduced as part of a loan modification, or if you pay off the loan early in return for a “discount” that reduces the debt, and you keep the collateral, the reduction or discount is canceled debt, reportable as ordinary income (cancellation of debt income) unless an exception applies.

J.K. Lasser's Your Income Tax 2016: For Preparing Your 2015 Tax Return by J. K. Lasser Institute

accelerated depreciation, Affordable Care Act / Obamacare, airline deregulation, asset allocation, book value, business cycle, collective bargaining, distributed generation, employer provided health coverage, estate planning, Home mortgage interest deduction, independent contractor, intangible asset, medical malpractice, medical residency, mortgage debt, mortgage tax deduction, passive income, Ponzi scheme, profit motive, rent control, Right to Buy, transaction costs, urban renewal, zero-coupon bond

The seller must report as income previously received payments that were not taxed (they were excluded under the home sale exclusion). 31.13 Foreclosure on Mortgages Other Than Purchase Money If you, as a mortgagee (lender), bid in on a foreclosure sale to pay off a mortgage that is not a purchase money mortgage, your actual financial loss is the difference between the unpaid mortgage debt and the value of the property. For tax purposes, however, you may realize a capital gain or loss and a bad debt loss that are reportable in the year of the foreclosure sale. Your bid is treated as consisting of two distinct transactions: Planning Reminder Voluntary Conveyance Instead of forcing you to foreclose, the mortgagor may voluntarily convey the property to you in consideration for your cancelling the mortgage debt. Your loss is the amount by which the mortgage debt plus accrued interest exceeds the fair market value of the property.

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Apart from the gain or loss on the deemed sale, if you are personally liable on the loan (recourse debt) and the amount of the debt cancelled by the lender exceeds the fair market value of the property, you have cancellation of debt income that must be reported as ordinary income unless one of the exclusions discussed below applies. The lender will report fair market value of the property in Box 7 Form 1099-C. State law may treat home mortgage debt as nonrecourse. Some states have “anti-deficiency” statutes that treat a loan used to purchase a principal residence as a “nonrecourse” loan. In these states, a lender has no recourse against a homeowner for a deficiency judgment following a foreclosure or lender-approved short sale. Where a mortgage debt subject to one of these state laws is forgiven, the taxpayer does not realize cancellation of debt income, as the income rule applies only to the cancellation of recourse debts for which there is personal liability.

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The basis allocation rules for determining gain on a bargain sale apply even if the annual deduction ceilings (14.17) bar a deduction in the year of the donation and in the five-year carryover period. EXAMPLE The Hodgdons contributed real estate valued at $3.9 million but subject to mortgage debt of $2.6 million. The IRS treated the mortgage debt as sales proceeds and figured gain based on the difference between the debt and the portion of basis allocated to the sale element. The Hodgdons claimed that the basis allocation rule, which increased the amount of their gain, should not apply. Earlier in the year, they had made another donation that used up their charitable deduction ceiling for that year as well as for the following five-year carryover period.

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

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

The former referred to the sheer amount of buying the central bank could do, the latter concerned an attempt to lower interest rates in specific markets, such as mortgage debt and corporate credit. So this was a policy initiated and decided upon by the Bank, but with considerable input from the government. At the top of the Treasury the assumption was that the structure created would be used, as was the case in the USA, to buy a wide range of commercial, government and mortgage debt, but that operational decisions regarding such purchases would be left to the Bank. And so, on 5 March 2009, quantitative easing was launched in Britain, accompanied by a cut in the base rate from 1 per cent to an unprecedented 0.5 per cent.

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Large increases in supply over demand, as in the USA, Spain and Ireland after the crisis, and prices go down. Simple enough. Except, of course, this simple model is entirely misleading. The housing market is not really a market for houses. The housing market is driven principally by the availability of finance, mainly mortgage debt, but sometimes bonuses, inheritances, or hot money from abroad – London in particular has become the preferred residence of the world’s wealthiest people, from Russian oligarchs to Arab oil sheikhs. Let’s start with Britain. There are 27 million dwellings in the UK. The short-term supply is basically fixed.

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The credit feeding frenzy in suburban Britain during this time was feeding off itself. But one innovation casts a particularly long shadow. Increasing multiples, decreasing deposits, allowing self-certification and stretching the term of a mortgage are all rather tame compared to never actually expecting the repayment of mortgage debt. That was the strategy behind ‘interest-only’ mortgages. In finance, a loan where the entire principal of the loan is due at the end of the term is known as a ‘bullet loan’, but that name might have conjured the wrong image. Interest-only loans are controversial. Forget trying to get one in Canada.

J.K. Lasser's Your Income Tax 2022: For Preparing Your 2021 Tax Return by J. K. Lasser Institute

accelerated depreciation, Affordable Care Act / Obamacare, airline deregulation, anti-communist, asset allocation, bike sharing, bitcoin, business cycle, call centre, carried interest, collective bargaining, coronavirus, COVID-19, cryptocurrency, distributed generation, distributed ledger, diversification, employer provided health coverage, estate planning, Home mortgage interest deduction, independent contractor, intangible asset, medical malpractice, medical residency, mortgage debt, mortgage tax deduction, passive income, Ponzi scheme, profit motive, rent control, ride hailing / ride sharing, Right to Buy, sharing economy, TaskRabbit, Tax Reform Act of 1986, transaction costs, zero-coupon bond

Where the bid price equals the mortgage debt plus unreported but accrued interest, you report the interest as income. But where the accrued interest has been reported, the unpaid amount is added to the collection expenses. Planning Reminder Voluntary Conveyance Instead of forcing you to foreclose, the mortgagor may voluntarily convey the property to you in consideration for your canceling the mortgage debt. Your loss is the amount by which the mortgage debt plus accrued interest exceeds the fair market value of the property. If, however, the fair market value exceeds the mortgage debt plus accrued interest, the difference is taxable gain.

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Apart from the gain or loss on the deemed sale, if you are personally liable on the loan (recourse debt) and the amount of the debt canceled by the lender exceeds the fair market value of the property, you have cancellation of debt income that must be reported as ordinary income unless one of the exclusions discussed below applies. The lender will report fair market value of the property in Box 7 Form 1099-C. State lawmay treat home mortgage debt as nonrecourse. Some states have “anti-deficiency” statutes that treat a loan used to purchase a principal residence as a “nonrecourse” loan. In these states, a lender has no recourse against a homeowner for a deficiency judgment following a foreclosure or lender-approved short sale. Where a mortgage debt subject to one of these state laws is forgiven, the taxpayer does not realize cancellation of debt income, as the income rule applies only to the cancellation of recourse debts for which there is personal liability.

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The basis allocation rules for determining gain on a bargain sale apply even if the annual deduction ceilings (14.17) bar a deduction in the year of the donation and in the five-year carryover period. EXAMPLE The Hodgdons contributed real estate valued at $3.9 million but subject to mortgage debt of $2.6 million. The IRS treated the mortgage debt as sales proceeds and figured gain based on the difference between the debt and the portion of basis allocated to the sale element. The Hodgdons claimed that the basis allocation rule, which increased the amount of their gain, should not apply. Earlier in the year, they had made another donation that used up their charitable deduction ceiling for that year as well as for the following five-year carryover period.

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

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

A tidal wave of foreign money was pouring into the United States, as global investors frustrated by low interest rates and scarce investment opportunities at home looked abroad for better and safer yields. Ben called this seemingly insatiable demand for assets that generated decent returns a “global savings glut,” and it created a lot of dry tinder. The greatest part of the credit boom took place in the U.S. mortgage market. Mortgage debt per U.S. household soared 63 percent from 2001 to 2007, much faster than household incomes. Some of this new debt was beneficial, helping people buy homes or take cash out of their homes for worthy purposes. But some of the new lending veered into dangerous, unexplored territory, where the underwriting standards, especially for higher-risk subprime mortgages to lower-income borrowers, eroded dramatically.

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IndyMac’s failure was a sign that the fire was burning hotter again, but it didn’t seem to threaten the core of the system. Our main concerns that week were Fannie Mae and Freddie Mac, the government-sponsored mortgage giants that together were more than fifty times the size of IndyMac—and more than four times the size of Bear. They held or guaranteed more than $5 trillion worth of mortgage debt, and were also the last major source of mortgage financing in the United States, backing three of every four new home loans. That meant their collapse would halt production of new mortgages and crush the already battered housing market, which would mean more foreclosures on Main Street and more panic about mortgage securities on Wall Street.

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They were basically the corporate embodiment of moral hazard, enjoying the upside of their risk taking while taking comfort that taxpayers would cover any downside. They did not cause the crisis, as some critics have suggested; until late in the boom, the underwriting for mortgages they bought and backed was relatively conservative for the industry. But they did relax their standards before the bust, and by guaranteeing so much mortgage debt in the first place, they did help facilitate the tsunami of foreign money into U.S. real estate that set the stage for the crisis. All three of us, like our predecessors, had been deeply concerned about Fannie Mae and Freddie Mac for years; we had all supported sweeping reforms of their business model and stricter regulation of their risk taking.

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

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

To put that into perspective, consider that over the preceding 70 years, the U.S. government had fought World War II, the Korean War, the Cold War, the Vietnam War, and two Gulf Wars, had carried out numerous social welfare programs, and had sent a man to the moon, but had accumulated only a total of $5 trillion in debt in the process. What did Fannie and Freddie and the ABS issuers do with all the money they borrowed? They lent it to the household sector in the form of mortgages and consumer credit. Between 1982 and 2007, the mortgage debt of the household sector rose ten times to $10.5 trillion. Consumer credit increased six times over the same period to $2.5 trillion. (See Exhibit 3.4.) EXHIBIT 3.4 Home Mortgages and Consumer Credit Source: Federal Reserve, Flow of Funds Accounts of the United States, second quarter 2011 Relative to the overall size of the economy, the financial sector’s debt rose from 21 percent of GDP in 1980 to 116 percent in 2007.

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He began by quoting from an article published in Fortune magazine in 1956: “Consumer short-term debt . . . is approaching a historical turning point . . . It must soon adjust itself to the nation’s capacity for going in hock, which is not limitless,” declared Fortune in March 1956. A month later, the magazine added, “The same general observations apply to mortgage debt—but with double force.” Greenspan then added, “Today, nearly fifty years later, the ratio of household debt to income is still rising, and critics are still wringing their hands. In fact, I do not recall a decade free of surges in angst about the mounting debt of households and businesses. Such fears ignore a fundamental fact of modern life: in a market economy, rising debt goes hand in hand with progress.”2 Exhibit 6.3 puts Greenspan’s comments into perspective.

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It shows household debt as a ratio of household disposable income from 1946 to 2010. EXHIBIT 6.3 Ratio of Household Debt to Disposable Personal Income Source: Federal Reserve, Flow of Funds Accounts of the United States, second quarter 2011, Table B.100 Notice that this ratio had hit 53 percent and was rising rapidly at the time Fortune expressed concern about mortgage debt in 1956. Then, from the mid-1960s to the mid-1980s it flattened out around 70 percent. Alan Greenspan became Fed chairman in August 1987. Soon thereafter, household debt relative to disposable income began to rise sharply. That ratio peaked at nearly 140 percent in 2007, just as Greenspan was expounding on the role of rising debt and the facts of life.

Meltdown: How Greed and Corruption Shattered Our Financial System and How We Can Recover by Katrina Vanden Heuvel, William Greider

Alan Greenspan, Asian financial crisis, banking crisis, Bear Stearns, Bretton Woods, business cycle, buy and hold, capital controls, carried interest, central bank independence, centre right, collateralized debt obligation, conceptual framework, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, declining real wages, deindustrialization, Exxon Valdez, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, fixed income, floating exchange rates, full employment, Glass-Steagall Act, green new deal, guns versus butter model, housing crisis, Howard Zinn, Hyman Minsky, income inequality, information asymmetry, It's morning again in America, John Meriwether, junk bonds, kremlinology, Long Term Capital Management, low interest rates, margin call, market bubble, market fundamentalism, McMansion, Michael Milken, Minsky moment, money market fund, mortgage debt, Naomi Klein, new economy, Nixon triggered the end of the Bretton Woods system, offshore financial centre, payday loans, pets.com, plutocrats, Ponzi scheme, price stability, pushing on a string, race to the bottom, Ralph Nader, rent control, Robert Shiller, Ronald Reagan, Savings and loan crisis, savings glut, sovereign wealth fund, structural adjustment programs, subprime mortgage crisis, The Great Moderation, too big to fail, trade liberalization, transcontinental railway, trickle-down economics, union organizing, wage slave, Washington Consensus, women in the workforce, working poor, Y2K

Purchases of existing homes hit a record of 6.1 million in 2003, more than 500,000 above the previous record set in 2002. Each home purchase is accompanied by thousands of dollars of closing costs, plus thousands more spent on furniture and remodeling. The indirect impact of the housing bubble is at least as important. Mortgage debt rose by an incredible $2.3 trillion between 2000 and 2003. This borrowing has sustained consumption growth in an environment in which firms have been shedding jobs and cutting back hours, and real wage growth has fallen to zero, although the gains from this elixir are starting to fade with a recent rise in mortgage rates and many families are running out of equity to tap.

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What it is depends on whether other sectors pick up some of the slack—say, if businesses were to start hiring and investing rather than hoarding their plentiful cash or distributing it to their stockholders. If they don’t, things could get quite unpleasant. So many households have taken on so much mortgage debt that if prices merely stop rising, they’re going to find themselves under water. And the broad economy has become so dependent on home-equity credit that its withdrawal could come as a terrible shock. Maybe the economy will finally have to face the consequences of the collapse of the 1990s stock-driven boom that it managed to avoid by speculating on housing instead.

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Record house prices were supported by a tidal wave of speculation, as millions of people suddenly became interested in investment properties. As prices soared, financing arrangements became ever more questionable. Down payments went out of style. Adjustable-rate mortgages and interest-only loans, even negative amortization loans (in which mortgage debt grows month by month), became common. The worst of the speculative financing was in the subprime market, where moderate-income home buyers were persuaded to take out adjustable-rate mortgages, which generally feature very low “teaser rates,” typically reset after three years, often to levels that are five or six percentage points higher.

Shaky Ground: The Strange Saga of the U.S. Mortgage Giants by Bethany McLean

activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Alan Greenspan, Bear Stearns, collateralized debt obligation, crony capitalism, housing crisis, junk bonds, Michael Milken, mortgage debt, negative equity, obamacare, Pershing Square Capital Management, race to the bottom, Savings and loan crisis

In all these cases, American society’s big reach also generates big controversies, and in the business of homeownership the controversies are both domestic policy battles—why do we need the government in our mortgage markets at all?—and potential international policy issues, because many billions of dollars of U.S. mortgage debt are owned by other governments that very much want to see it as a stable investment. Most people who weren’t paying close attention probably date the beginning of the global financial crisis at September 15, 2008, the day Lehman Brothers declared bankruptcy. But a few days earlier, on September 6, the U.S.

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In large part because of their perceived safety as an investment, American mortgages became catnip to global investors. By the 1990s, it wasn’t just Boston bankers investing in Arizona mortgages, but Chinese workers and their savings accounts enabling Americans in Kansas to buy homes. By the 2000s, foreign central banks and other foreign investors were financing over a trillion dollars of American mortgage debt via their ownership of GSE securities. It was Hank Paulson, the former Goldman Sachs executive who served as Treasury Secretary from 2006 until January 20, 2009, who orchestrated the government takeover of Fannie and Freddie during the financial crisis. Something that he says “took his breath away” happened during the summer of 2008, when he was at the Beijing Olympics.

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The analysis was very similar to that in a paper called “Fannie Mae Insolvency and Its Consequences” that was circulating among senior officials at the National Economic Council and the Treasury. Even the language was similar. “A government seizure is inevitable,” it began. It noted the same accounting concerns, and even ended with a version of the same conclusion: “A fully government owned guarantor of mortgage debt might be exactly what is called for given the current housing crisis . . . without the need to satisfy a fiduciary duty to shareholders, Fannie might finally be able to perform its affordable housing mission in a helpful and proactive manner.” The Monday after the Barron’s story ran, Fannie’s stock fell 13 percent.

Rebel Cities: From the Right to the City to the Urban Revolution by David Harvey

Alan Greenspan, Bretton Woods, business cycle, collateralized debt obligation, commoditize, creative destruction, David Graeber, deindustrialization, financial innovation, Garrett Hardin, gentrification, Guggenheim Bilbao, Hernando de Soto, high-speed rail, housing crisis, illegal immigration, indoor plumbing, invisible hand, Jane Jacobs, late capitalism, Lewis Mumford, Long Term Capital Management, low interest rates, market bubble, market fundamentalism, means of production, military-industrial complex, moral hazard, mortgage debt, mortgage tax deduction, Murray Bookchin, New Urbanism, Ponzi scheme, precariat, profit maximization, race to the bottom, radical decentralization, Robert Shiller, Savings and loan crisis, special economic zone, the built environment, the High Line, The Wealth of Nations by Adam Smith, Tragedy of the Commons, transcontinental railway, urban planning, We are the 99%, William Langewiesche, Works Progress Administration

The buildings we see around us in New York City, they poignantly note, represent "more than an arch itectural movement; they were largely the manifestation of a widespread financial phenomenon:' Noting that real estate securities in the 1 920s were every bit as "tox ic as they are now:· they went on to conclude: The New York skyline is a stark reminder of securitization's ability to connect capital from a sp eculative public to building ventures. An increased understanding of the early real estate securities market has the 60% Annual rate of change in mortgage debt in the Un ited States, 1 9 5 5 - 76 40 20 1959 1967 1 963 1971 $500 S h are prices of real estate investment trusts in the US, 1 975 1 9 66-75 400 300 200 100 0 +-----.-----,--, 1 973 1 967 1 969 1971 4 00 Property share price index in the UK, 1 96 1 -75 300 � "0 .s 200 100 1 962 1 964 1 966 1 968 1 970 Year Source: US De.

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In the case of developing countries such as Th ailand-where housing mort­ gages, if the World B ank Report is right, are equivalent to only l 0 percent of GDP- a property crash could certainly contribute to, but not likely totally power, a m acroeconomic collapse (of the sort that occurred in 1 9 97-98), whereas in the United States, where housing mortgage debt is equivalent to 40 percent of GDP, it m ost certainly could and did gen erate a crisis in 2007- 09. 50 .. 4 0 "" c 'ij '5 .., 30 j 20 '0 E ::s z 10 0 ������ 1 9 70 1 890 1910 1930 1 950 1 990 2010 Year Source: after William Godzmamt and Fran/c. Newman. "Securitization i u the 1 920s.,• NBER W"'rking Papn 1 5650 Figu re 2 Tall Buildings Constructed in New Yo rk City, 1 890-2 0 1 0 T H E U R BAN ROOTS OF CAP I TALI ST C R I S E S 35 TH E M A RX I ST P E RS P ECTIVE Since bourgeois theory, if not totally blind, at best lacks insights in relating urban developments to macroeconomic disruptions, one would have thought that M arxist critics, with their vaunted historical­ materialist methods, would h ave had a field day with fierce denun­ ciations of soaring rents and the savage dispossessions characteristic of what M arx and Engels referred to as the secondary forms o f exploita­ tion visited upon the working classes in their living places by merchant capitalists and landlords.

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A lot o f credit-based activity may indeed be spe culative froth, and a disgusting excrescence of human lust for gold and pure money power. But much o f it is fundamental and abso ­ lutely necessary to the functioning of capital. Th e b oundaries b e tween what is necessary and what is (a) necessarily fictitious (as in the case of state and mortgage debt) and (b) pure excess, are not easy to define. Clearly, to try to analyze the dynamics of the recent crisis and its after­ math without reference to the credit system (with mor tgages standing at 40 percent o f G D P in the United States) , consumerism (70 percent of the driving force in the US economy compared to 3 5 percent in China), and the state of competition (monopoly power in financial, real estate, retail­ ing, and many other markets) would b e a ridiculous enterprise.

Paper Promises by Philip Coggan

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

Incredibly, products like option adjustable rate mortgages (ARMs) effectively allowed US homebuyers to borrow more than the value of the house; borrowers were allowed to pick their own interest rate, with any shortfall being added to the size of the loan. Potential homebuyers were allowed to borrow greater multiples of their income and, in some cases, not required to provide any proof of their income at all (so-called ‘liar loans’). There was a rapid rise in mortgage debt after the 1980s; in both the UK and the US, mortgage debt rose from a little over 30 per cent of GDP in 1983 to around 80 per cent by 2006. Surprisingly, mortgage debt-to-GDP ratios were even higher, at nearly 100 per cent of GDP, in Denmark and the Netherlands. Meanwhile, the world of unsecured credit changed irrevocably with the advent of the credit card. As we have already seen, consumer credit developed steadily through the nineteenth and early twentieth centuries.

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My favourite (possibly apocryphal) story of the 1930s was of the lady who bought a washing machine on hire purchase and refused to use it until all the instalments had been paid. Economists generally agree that consumer credit is very useful for the economy. Some countries have too little consumer debt. In Russia, for example, mortgage debt is just 3 per cent of GDP. The ability to borrow allows people to smooth consumption over their lifetime; families can borrow money when the children are young, and pay off the debt when they leave home. This should mean that consumption is less prone to sudden swings, and thus recessions less severe.

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So when the newly elected Obama administration reacted to the crisis in classic Keynesian fashion, unveiling a near $800 billion stimulus plan, it faced a wave of public opposition. The ‘tea party’ campaign took its name from the revolutionary movement that protested against British taxes by dumping tea in Boston harbour. It seems to have started with a rant by Rick Santelli, a correspondent for the CNBC financial channel, about a US government plan to help those with mortgage debts. The movement channelled a number of areas of public discontent. Apart from the unpopularity of the bank bailout, there was a general feeling that it was ‘un-American’ to use public money to bail out businesses, even the auto companies with their hundreds of thousands of employees, on the grounds that people should stand on their own two feet.

Planet Ponzi by Mitch Feierstein

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

Cayne,’ May 3, 2007. 8 Data available from the Federal Reserve. Go to the website (www.federalreserve.gov) and search for ‘Mortgage debt outstanding.’ 9 John Gittelsohn, ‘Shiller says U.S. home-price declines of 10% to 25% “wouldn’t surprise me”,’ Bloomberg, June 9, 2011. 10 ‘Rooms with a view,’ The Economist, July 7, 2011. 11 Mortgage data from European Mortgage Federation. Go to the website (www.hypo.org), click on ‘Facts and figures,’ then look for ‘Value of mortgage debt.’ The data in the table are for 2009, the most recent figures available. I’ve used an exchange rate of €1 = $1.371 to convert to US dollars. 12 Tracy Alloway, ‘Under-reported – and non-performing – assets at US banks,’ Financial Times, ‘Alphaville’ blog, June 17, 2011.

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We’d just won the Cold War, the economy was on a roll: debt should have been trending down to zero. Likewise, at the end of the 1980s, a decade when leveraged buyouts were all the rage on Wall Street, people were anxious that corporations had taken on so much debt that investment and growth would be inevitably impaired. People were worried about the incessant increases in credit card and mortgage debt, and the changes in culture that went along with that increase. These worries were neither flippant nor ill-founded. They were the right ones to have. Trouble is, our policymakers and regulators didn’t respond when it would have been easy and relatively costless to do so. They were too toothless, too inert, too dumb, too cowardly.

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The financial sector in Britain wasn’t as utterly out of control as its counterpart in the US‌—‌no subprime horrors, no CDOs of CDOs‌—‌but being ‘better managed than Wall Street’ is hardly a badge of managerial excellence. On pretty much every metric you care to look at, Britain has too much debt. Too much government debt. Too much household debt. Too many large and leveraged banks. Way too much mortgage debt. Even its corporations are too ready to borrow. Having said all that, however, Britain is still in better shape than the troubled economies of southern Europe. It doesn’t have the hideous government debt of Greece or Italy. It doesn’t have the structural rigidities of Spain. It’s still Europe’s chief magnet for inward investment.

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

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

The ratio of household debt to disposable personal income rose to 127 percent at the end of 2007, up from 77 percent in 1990. Consumers had become over-leveraged as they saved less and borrowed more to finance consumption. Between 2001 and 2007, households borrowed around US$5 trillion against their homes as they rose in value. Mortgage debt in 2008 was 73 percent of GDP, up from an average of 46 percent during the 1990s. The debt was made even riskier because of looser credit conditions, weak creditworthiness of borrowers, and predatory lending practices. The same phenomenon was observable in the UK, Canada, Australia, and some European countries.

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China's debt levels have risen rapidly, quadrupling between 2007 and 2014 from US$7 trillion to US$28 trillion. Business, household, and government debt have all grown. Only the financial sector in developed markets has reduced leverage. Businesses have borrowed not to invest, but to repurchase their own shares or buy other companies. Household borrowing, around 74 percent of which is mortgage debt, has increased in 80 percent of countries. Based on risk measures, such as debt-to-income ratios, debt service ratios, and house price changes, households in Canada, the Netherlands, Sweden, Australia, Malaysia, and Thailand are potentially vulnerable. Since 2007, government debt has grown globally by US$25 trillion, to US$58 trillion.

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South Korea, Malaysia, Indonesia, India, Thailand, Brazil, South Africa, and a number of Eastern European nations, like Hungary and Poland, also showed significant increases in debt, which was at levels considered high for developing nations. Belying the country's reputation for thrift, Chinese household debt has also risen sharply, nearly quadrupling since 2007, from US$1 trillion to US$3.8 trillion. Mortgage debt has grown by 21 percent per year, in parallel to a 60 percent rise in urban property prices since 2008. During the same period, consumer credit grew strongly in Brazil and many Asian countries. Under Brazil's parcelas (installments) culture, cars, consumer goods, holidays, plastic surgery, and funerals were available on credit.

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

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

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

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At the epicentre of the problem was the mountain of ‘toxic’ mortgage-backed securities held by banks or marketed to unsuspecting investors all around the world. Everyone had acted as if property prices could rise for ever. By autumn 2008, near-fatal tremors had already spread outwards from banking to the major holders of mortgage debt. United States government-chartered mortgage institutions Fannie Mae and Freddie Mac had to be nationalised. Their shareholders were destroyed but the bondholders, including the Chinese Central Bank, remained protected. Unsuspecting investors across the world, from pension funds, small regional European banks and municipal governments from Norway to Florida, who had been lured into investing in pools of ‘highly rated’ securitised mortgages, found themselves holding worthless pieces of paper and unable to meet their obligations or pay their employees.

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This means either state involvement or a financial system robust enough to assemble the capital and deploy it with the desired long-term effects and wait patiently for the returns. This has usually meant radical innovations in the state–finance nexus. Since the 1970s, financial innovations such as the securitisation of mortgage debt and the spreading of investment risks through the creation of derivative markets, all tacitly (and now, as we see, actually) backed by state power, have permitted a huge flow of excess liquidity into all facets of urbanisation and built environment construction worldwide. In each instance innovation in the state–finance nexus has been a necessary condition for channelling surpluses into urbanisation and infrastructural projects (e.g. dams and highways).

Finance and the Good Society by Robert J. Shiller

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

We know that securitizers were creating new investment vehicles based on mortgages. But what is the di erence, really, whether one invests in RMBSs or in shares in banks that own mortgages, as was the practice before Freddie and Fannie started issuing these? Securitization was indeed never really popular in most parts of the world. The movement toward securitization of home mortgage debt became particularly strong in the United States thanks to powerful impetus from government support. But, lacking the subsidy e ectively given by the U.S. government via Fannie Mae and Freddie Mac, mortgage securitization has not been common anywhere else.6 Before the crisis of 2007 nance theorists saw clear innovation in mortgage securitization.

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Claire Hill, in her article “Securitization: A Low-Cost Sweetener for Lemons,” written before the crisis, argued persuasively that an important reason the securitization and CDO market can function well is that it helps solve the lemons problem.9 Bundling mortgages into securities that are evaluated by independent rating agencies, and dividing up a company’s securities into tranches that allow specialized evaluators to do their job, e ciently lowers the risk to investors of getting stuck with lemons. They should be able to trust the higher-tranche CDOs more than any pool of mortgages or any share in a complex and difficult-to-understand mortgage-lending institution. So there was a valid theory as to why the splitting of securitized mortgage debt into tranches was a good idea. Of course it turns out not to have worked superbly well in practice, but this is largely because of the erroneous assumption noted earlier—that everyone, including the rating agencies, thought home prices just couldn’t fall. That mistake, and not any flaw in the logic of Claire Hill’s theory, was the real problem.

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Hence there are massive di erences across countries in average levels of indebtedness, and in propensity to save and build wealth. Leverage in the U.S. Financial Crisis of 2007 During the boom in the United States just prior to the severe nancial crisis, between 2001 and 2007, household debt, including mortgage debt and credit card debt, doubled from $7 trillion to $14 trillion. Household debt as a fraction of income rose to a level not seen since the onset of the Great Depression. After the decline in home prices began, strapped households began to curtail their consumption, setting a course toward a severe recession.

Just Keep Buying: Proven Ways to Save Money and Build Your Wealth by Nick Maggiulli

Airbnb, asset allocation, Big Tech, bitcoin, buy and hold, COVID-19, crowdsourcing, cryptocurrency, data science, diversification, diversified portfolio, financial independence, Hans Rosling, index fund, it's over 9,000, Jeff Bezos, Jeff Seder, lifestyle creep, mass affluent, mortgage debt, oil shock, payday loans, phenotype, price anchoring, risk-adjusted returns, Robert Shiller, Sam Altman, side hustle, side project, stocks for the long run, The 4% rule, time value of money, transaction costs, very high income, William Bengen, yield curve

For example, research published in the Journal of Economic Psychology found that British households with higher levels of outstanding credit card debt were “significantly less likely to report complete psychological well-being.”³⁷ However, no such association was found when examining households with mortgage debt. Researchers at Ohio State echoed these findings when they reported that payday loans, credit cards, and loans from family and friends caused the most stress, while mortgage debt caused the least.³⁸ On the physical health front, a study in Social Science & Medicine found that high financial debt relative to assets among American households was associated with “higher perceived stress and depression, worse self-reported general health, and higher diastolic blood pressure.”

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For example, if you work at (or start) a company that provides equity compensation, you may one day find that a significant portion of your wealth is in a single security. In this case, congratulations on your gains! However, you will probably want to sell at least a portion of this position down over time. How much should you sell? It depends on your goals. For example, if you have mortgage debt and a large, concentrated position in one security, it may make sense to sell down enough of this security to pay off your mortgage. From a return perspective this is probably sub-optimal since your concentrated asset will probably rise in value more quickly than your home. However, from a risk perspective this can make lots of sense.

The City by Tony Norfield

accounting loophole / creative accounting, air traffic controllers' union, anti-communist, Asian financial crisis, asset-backed security, bank run, banks create money, Basel III, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, BRICs, British Empire, capital controls, central bank independence, colonial exploitation, colonial rule, continuation of politics by other means, currency risk, dark matter, Edward Snowden, Fall of the Berlin Wall, financial innovation, financial intermediation, foreign exchange controls, Francis Fukuyama: the end of history, G4S, global value chain, Goldman Sachs: Vampire Squid, interest rate derivative, interest rate swap, Irish property bubble, Leo Hollis, linked data, London Interbank Offered Rate, London Whale, Londongrad, low interest rates, Mark Zuckerberg, Martin Wolf, means of production, Money creation, money market fund, mortgage debt, North Sea oil, Northern Rock, Occupy movement, offshore financial centre, plutocrats, purchasing power parity, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, Ronald Reagan, seigniorage, Sharpe ratio, sovereign wealth fund, Suez crisis 1956, The Great Moderation, transaction costs, transfer pricing, zero-sum game

In response, US Treasury Secretary William Simon visited the Saudi Arabian Monetary Authority in July 1974 to sell them US Treasury securities.5 This was part of a more general deal with Saudi Arabia, the main OPEC oil producer, including lucrative weapons contracts for US companies and a US promise to give Saudi Arabia military protection.6 By the end of 1977, Saudi Arabia accounted for 20 per cent of all Treasury notes and bonds held by foreign central banks, which at that time was astonishing for a ‘developing country’. Following a US Commerce Department trip to Saudi Arabia, Saudi money was also invested in government-backed mortgage securities. Selling US mortgage debt to foreign investors had a long history well before the 2007–8 financial crisis! Political and economic negotiations with the Saudis and other Middle Eastern OPEC states also kept the price of oil denominated in US dollars. The US supported Saudi Arabia’s political ambition to secure a larger IMF quota (and enhanced IMF voting rights) at the same time as plans to shift the oil price from the dollar were dropped.7 This was despite a June 1975 agreement between the OPEC countries to peg oil prices to a group of major currencies, not just the dollar, as a means of protecting themselves from falls in the dollar’s value.

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In 2005, 15 per cent of the UK population, or around nine million people, owned equities either directly or via mutual funds.33 Other data show that UK individuals directly owned 11.5 per cent of the value of UK equities at the end of 2010, worth £204.5bn, excluding any holdings via investment funds, etc.34 While the median net financial wealth of UK households in 2010–12 was estimated at just below £6,000, including cash savings, bond and equity holdings minus financial liabilities (but excluding mortgage debt), there were many households with significant assets. Most financial wealth is held in the form of bonds and equities; only a small proportion is in the form of cash deposits. In 2010–12, a quarter of all households in Britain had zero or negative net financial wealth, in other words, net debts.

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From an estimated $68bn in 2000, annual global CDO issuance increased nearly eightfold to a peak of $521bn in 2006.19 Alongside this, profits reported by the US financial sector, the source of most CDO issuance, more than doubled over the same period – before the collapse that occurred shortly afterwards when mortgage defaults soared in the US. The banks’ sale of mortgage securities played a major role in the expansion of mortgage debt to more and more borrowers, including in the end to those who were in no position to pay that debt back. Banks also create other kinds of security, known as derivatives, for hedging and speculative purposes. These include interest rate swaps, and futures and options on interest rates and currency values.

The Oil Factor: Protect Yourself-and Profit-from the Coming Energy Crisis by Stephen Leeb, Donna Leeb

Alan Greenspan, book value, Buckminster Fuller, buy and hold, currency risk, diversified portfolio, electricity market, fixed income, government statistician, guns versus butter model, hydrogen economy, income per capita, index fund, low interest rates, mortgage debt, North Sea oil, oil shale / tar sands, oil shock, peak oil, profit motive, reserve currency, rising living standards, Ronald Reagan, shareholder value, Silicon Valley, Vanguard fund, vertical integration, Yom Kippur War, zero-coupon bond

In essence, inflation will beget further inflation as policymakers find their hands tied by the existence of so much consumer debt. Home Sweet Home A major portion of total consumer debt—about 70 percent—is in the form of home mortgages, whose growth is displayed in figure 5c, “Mortgage Debt Outstanding.” According to the Federal Reserve, nonmortgage debt (credit cards, bank loans, etc.) payment as a percentage of disposable income has declined since 1980. During the same period, mortgage debt payments, as figure 5c shows, have risen by over 40 percent. There’s a good reason why homes account for so much of overall consumer debt—banks are more willing to lend money for a home than for almost anything else.

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Holding the S&P 500 (figure 2b) Oil’s Buy and Sell Signals (figure 2c) Our Ongoing Oil Habit (figure 2d) Declining Domestic Oil Production (figure 3a) Declining Saudi GDP (figure 3b) Real Oil Prices, 1949-2002 (figure 4a) Debt as Percentage of GDP (figure 5a) Soaring Bankruptcy Petitions (figure 5b) Mortgage Debt Outstanding (figure 5c) Natural Gas Prices (figure 6a) Government Spending and the CPI, 1901-2002 (figure 8a) Energy and Inflation (figure 9a) Inverse Relationship (figure 9b) Inflation and Markets (figure 10a) Sailing Through the 1970s (figure 10b) Silver (figure 13a) Palladium (figure 13b) Defense Expenditures (figure 14a) Weather-Related Woes (figure 15a) Bonds in the Depression (figure 17a) Defying the Market Portfolio Performance (figure 18a) Model Portfolios (figure 18b) Preface Investing is a tough business, whether you do it simply for your own account or professionally.

The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay by Emmanuel Saez, Gabriel Zucman

activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, behavioural economics, Berlin Wall, book value, business cycle, carbon tax, Cass Sunstein, classic study, collective bargaining, Cornelius Vanderbilt, corporate governance, cross-border payments, Donald Trump, financial deregulation, government statistician, income inequality, income per capita, independent contractor, informal economy, intangible asset, Jeff Bezos, labor-force participation, Lyft, Mark Zuckerberg, market fundamentalism, Mont Pelerin Society, mortgage debt, mortgage tax deduction, new economy, offshore financial centre, oil shock, patent troll, profit maximization, purchasing power parity, race to the bottom, rent-seeking, ride hailing / ride sharing, Ronald Reagan, shareholder value, Silicon Valley, single-payer health, Skype, Steve Jobs, Tax Reform Act of 1986, The Wealth of Nations by Adam Smith, transfer pricing, trickle-down economics, uber lyft, very high income, We are the 99%

For most Americans, wealth primarily consists of housing and retirement savings on the asset side, and mortgage debt, consumer credit, and student loans on the liability side.16 Public policies directly affect each of these forms of assets and liabilities. In the post–World War II decades, regulations encouraged firms to provide funded pensions to their employees. The federal government sponsored the creation of thirty-year mortgages, providing an effective tool to save over a lifetime—because paying down your mortgage debt and building home equity, now that’s saving. After the 1980s, by contrast, student loans boomed as public funding for higher education retreated.

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After the 1980s, by contrast, student loans boomed as public funding for higher education retreated. Financial deregulation made it easier for people to get into debt, for example by facilitating the perpetual rollover of mortgage debt through refinancing, or by boosting the supply of consumer credit. This is perhaps the main lesson of behavioral economics, the fast-growing field of research that strives to take a more realistic view of human behavior than the standard, hyper-rational economic model: when it comes to influencing the saving rate, nontax policies swamp tax incentives.17 Take default options, for example. Newly hired workers are four times more likely to enroll in a 401(k) retirement savings account—the now dominant form of retirement saving in the United States—when that’s the default option offered to them (80%, in that case, do enroll) than when they have to voluntarily opt in (20%).18 Default options not only boost retirement saving, they increase the overall saving rate of workers: the money put in retirement saving accounts does not crowd out other forms of wealth accumulation (such as the reimbursement of housing debt).

The Meritocracy Myth by Stephen J. McNamee

Abraham Maslow, affirmative action, Affordable Care Act / Obamacare, American ideology, antiwork, Bernie Madoff, British Empire, business cycle, classic study, collective bargaining, computer age, conceptual framework, corporate governance, deindustrialization, delayed gratification, demographic transition, desegregation, deskilling, Dr. Strangelove, equal pay for equal work, estate planning, failed state, fixed income, food desert, Gary Kildall, gender pay gap, Gini coefficient, glass ceiling, helicopter parent, income inequality, informal economy, invisible hand, job automation, joint-stock company, junk bonds, labor-force participation, longitudinal study, low-wage service sector, marginal employment, Mark Zuckerberg, meritocracy, Michael Milken, mortgage debt, mortgage tax deduction, new economy, New Urbanism, obamacare, occupational segregation, old-boy network, pink-collar, plutocrats, Ponzi scheme, post-industrial society, prediction markets, profit motive, race to the bottom, random walk, Savings and loan crisis, school choice, Scientific racism, Steve Jobs, The Bell Curve by Richard Herrnstein and Charles Murray, The Spirit Level, the strength of weak ties, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, too big to fail, trickle-down economics, upwardly mobile, We are the 99%, white flight, young professional

In 1890, 72 percent of American home owners owned their own homes outright. By 1990, the corresponding figure had dropped to only 35 percent (Devaney 1994), then shrank again to only 29.3 percent by 2012 (Hopkins 2013). In short, more Americans live in “owner-occupied housing,” but a higher portion of them have gone into debt to do so. Mortgage debt reached crisis proportions in 2008, precipitating a general financial meltdown, record numbers of foreclosures and bankruptcies, as well as a series of bank failures leading to a massive $700 billion federal bailout. The uptick in home-ownership rates, as it turned out, was largely an illusion fueled by the housing bubble that produced unrealistic and unsustainable debt levels.

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By late 2007, the financial sector was on the edge of economic collapse, reminiscent of the banking collapse that triggered the Great Depression in 1929. The full explanation of the causes of the subsequent Great Recession is still being debated (Davies 2010; Fligstein and Goldstein 2011), but there is widespread consensus that it was immediately triggered by a massive mortgage debt crisis. Following the structural shifts in the economy associated with globalization and deindustrialization, the U.S. economy was kept partially afloat by the dot-com bubble of the 1980s and 1990s, which crashed in 2000, driving stock market prices down sharply. To help stimulate the economy in the aftermath of this downturn, the Federal Reserve reduced interest rates (the costs of money to lenders) to practically zero.

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., 1.1-1.2 , 2.1-2.2 , 3 Countrywide financial corporation, 1 , 2 Creating a Class: College Admissions and the Education of Elites (Stevens), 1 credentials credential underemployment, 1 cultural credentials, 1 , 2 , 3 , 4 , 5 , 6 importance of, 1.1-1.2 , 2 , 3 inflation of, 1 , 2.1-2.2 , 3 nonvalidated, 1 opportunities to earn, 1 cultural capital acquisition of, 1.1-1.2 defined, 1 , 2 , 3 discrimination and, 1 , 2 educational inequalities, 1 , 2 , 3.1-3.2 , 4 , 5 , 6 , 7 elite circles, acceptance into, 1 employers impressed with, 1.1-1.2 government programs leveling field, 1 information access, 1 inheritance and, 1 , 2 media portrayals, 1 nouveau riche, 1 right attitude, 1 social climbing, 1.1-1.2 , 2 transmission settings, 1.1-1.2 U.S. presidents, exemplifying, 1.1-1.2 culture-of-poverty theory, 1.1-1.2 , 2 D debt as a coping strategy, 1.1-1.2 Great Recession, during, 1 , 2 , 3 housing/mortgage debt, 1 , 2 as a liability, 1 student loans, 1 , 2.1-2.2 democracy, 1 , 2.1-2.2 , 3.1-3.2 , 4 , 5 , 6 , 7 , 8.1-8.2 Democracy in America (de Tocqueville), 1.1-1.2 disabled Americans, 1.1-1.2 , 2 , 3 discrimination affirmative action as a remedy, 1.1-1.2 ageism, 1.1-1.2 , 2 American Dream, affecting, 1.1-1.2 , 2 , 3.1-3.2 , 4 , 5 , 6 , 7 , 8.1-8.2 , 9.1-9.2 , 10.1-10.2 , 11 continuing effects of, 1.1-1.2 , 2 the disabled, experiences of, 1.1-1.2 , 2 , 3 in education, 1 , 2.1-2.2 , 3.1-3.2 , 4.1-4.2 , 5 , 6 expansion of opportunity and, 1 heterosexist prejudices, 1.1-1.2 , 2 , 3 in-group solidarity, 1.1-1.2 institutional favoritism, 1.1-1.2 , 2 , 3.1-3.2 legal and political injustice, 1.1-1.2 , 2 , 3.1-3.2 occupational unfairness, 1 , 2 , 3.1-3.2 , 4 , 5 , 6 , 7 , 8 the physically attractive as favored, 1.1-1.2 racial bigotry, 1 , 2.1-2.2 , 3.1-3.2 , 4 , 5.1-5.2 , 6 , 7 , 8 reform movements combating, 1.1-1.2 , 2 religious intolerance, 1.1-1.2 , 2 , 3 , 4 residential inequity, 1.1-1.2 , 2 women, experiences of, 1 , 2 , 3 , 4 , 5.1-5.2 , 6.1-6.2 , 7.1-7.2 , 8.1-8.2 , 9.1-9.2 Domhoff, William, 1 , 2 Duncan, Otis Dudley, 1 E education affirmative action and, 1 , 2 African Americans, educational issues of, 1.1-1.2 , 2.1-2.2 , 3 American Dream, as part of, 1 , 2.1-2.2 , 3 , 4 , 5 , 6 cognitive elite and educational attainment, 1 credentials, importance of, 1.1-1.2 , 2 , 3 , 4.1-4.2 discrimination affecting, 1 , 2.1-2.2 , 3.1-3.2 , 4.1-4.2 , 5 , 6 educational endogamy, 1 government spending on, 1.1-1.2 , 2 human capital theory, 1 , 2 income affected by, 1 individualism, aiding in, 1 inequalities and, 1 , 2.1-2.2 , 3.1-3.2 , 4 , 5 , 6 , 7 , 8 , 9 occupational opportunities, linked to, 1 , 2.1-2.2 , 3.1-3.2 , 4.1-4.2 , 5 , 6.1-6.2 , 7.1-7.2 , 8.1-8.2 , 9.1-9.2 , 10 , 11.1-11.2 , 12 , 13.1-13.2 parental circumstances affecting, 1 , 2 , 3 , 4 , 5 , 6 school completion, 1 school quality and school funding, 1.1-1.2 social/cultural capital and, 1 , 2 , 3 , 4 , 5 , 6 , 7.1-7.2 , 8 , 9 , 10 , 11 success, as a factor in, 1 , 2 , 3 , 4 teacher salary discrepancies, 1 , 2 women and, 1.1-1.2 , 2 See also college T The Education-Jobs Gap (Livingstone), 1 E employment See occupations endogamy, 1.1-1.2 entrepreneurs and entrepreneurialism American respect for, 1 , 2 , 3 , 4 education vs., 1 , 2.1-2.2 entrepreneurial capitalists, 1 , 2 , 3 entrepreneurial traits, 1 , 2 franchisees not considered as entrepreneurs, 1 irregular economy, participation in, 1.1-1.2 luck as part of success, 1 , 2 random-walk hypothesis, 1 social capital, use of, 1 , 2 , 3 upward mobility, aiming for, 1 , 2 See also self-employment Etcoff, Nancy, 1.1-1.2 ethics See moral character F Forbes magazine income listings, 1.1-1.2 , 2.1-2.2 , 3 franchises, 1.1-1.2 , 2 free-market economy, 1.1-1.2 , 2 T The Frontier in American History (Turner), 1.1-1.2 F frontier influence in America, 1 , 2 , 3 , 4 functional theory of inequality, 1 G gambling, 1 , 2 , 3 , 4.1-4.2 , 5 Gates, Bill, 1 , 2 , 3 , 4.1-4.2 , 5 Gendall, Murray, 1 Gilded Age, 1 , 2 , 3 Gini coefficient, 1.1-1.2 Gladwell, Malcolm, 1 , 2 glass ceiling, 1 , 2 , 3.1-3.2 , 4 government programs education funding, 1 , 2 , 3 health care, 1 , 2 highway subsidies and suburb development, 1 , 2 home ownership, encouraging, 1 , 2 land giveaways, 1 the poor as targets of, 1 , 2 , 3 proposed asset-building policies, 1.1-1.2 “thousand points of light” as alternative, 1 transfer payment, 1 Granovetter, Mark, 1.1-1.2 Great Depression, 1 , 2 , 3 Great Recession African Americans affected by, 1 , 2 age discrimination during, 1 class issues resulting from, 1 debt and bankruptcies, rise of, 1.1-1.2 factors leading to, 1.1-1.2 home ownership during, 1.1-1.2 , 2 mortgage debt as contributor, 1 retirement delays caused by, 1 self-employment increase, 1 white-collar crime leading to, 1 H Hamermesh, Daniel S., 1.1-1.2 , 2 hard work beauty achieved through, 1 capitalism, associated with, 1 , 2 consumption as reward, 1 as determinant of inequality, 1 increased work hours as a coping strategy, 1.1-1.2 modest effects of, 1 self-made men and, 1 as a success factor, 1 , 2 , 3.1-3.2 , 4 , 5 , 6 health health care plans, 1.1-1.2 , 2 , 3 , 4.1-4.2 , 5 , 6 older workers, 1 wealth affecting, 1 , 2 , 3.1-3.2 , 4 , 5 Herrnstein, Richard, 1.1-1.2 , 2 hierarchy-of-needs theory, 1 , 2 higher education See college hiring practices, 1.1-1.2 , 2 , 3 Hispanics, 1 , 2 , 3 , 4 , 5 , 6 , 7 Hochschild, Jennifer, 1 hockey player success, 1.1-1.2 Home Advantage (Lareau), 1.1-1.2 home ownership, 1.1-1.2 , 2.1-2.2 , 3 , 4.1-4.2 homosexuality and discriminatory practices, 1.1-1.2 , 2 human capital, 1 , 2.1-2.2 , 3 , 4 , 5 , 6 I IBM, 1.1-1.2 immigrants, 1.1-1.2 , 2 , 3 , 4 , 5 , 6 , 7 individualism as culturally dominant, 1 democracy, expressed through, 1 , 2.1-2.2 as greatly valued, 1 , 2 immigrants and, 1.1-1.2 as part of the entrepreneurial personality, 1 pioneer spirit reinforcing, 1 through self-employment, 1 self-help books promoting, 1 inequalities charitable giving as a means of reducing, 1.1-1.2 conflict and functional theories of, 1.1-1.2 economic inequalities, 1 , 2 , 3 , 4.1-4.2 , 5 , 6 , 7 , 8 educational system and, 1 , 2.1-2.2 , 3.1-3.2 , 4 , 5 , 6 , 7 , 8 , 9 gender inequality, 1.1-1.2 government spending as a factor, 1 , 2 ideologies of, 1.1-1.2 labor unions working to reduce, 1 matrix of domination, 1 residential inequalities, 1 , 2 taxes and, 1.1-1.2 , 2 in wages and income, 1.1-1.2 , 2.1-2.2 , 3.1-3.2 , 4 , 5 , 6.1-6.2 in wealth, 1 , 2 , 3.1-3.2 , 4 , 5 , 6 , 7 , 8 , 9 inheritance advantages of wealth inheritance, 1 , 2.1-2.2 , 3 attitudes towards, 1 , 2 baby boomers and, 1.1-1.2 , 2 conflict theories, within, 1 cultural capital and, 1 , 2.1-2.2 , 3 , 4 domestic partnerships and, 1 estate and inheritance taxes, 1.1-1.2 , 2 of estates, 1 , 2 Forbes magazine, heirs listed in, 1.1-1.2 inequalities, perpetuating, 1 , 2 , 3 luck and, 1 as a natural right, 1 nepotism and, 1.1-1.2 as a nonmerit factor, 1.1-1.2 , 2 , 3 , 4 , 5 , 6 , 7 , 8 old money and, 1.1-1.2 parental motivation, 1.1-1.2 , 2 primogeniture, 1 relay race, compared to, 1 , 2.1-2.2 , 3 , 4 , 5 wealth distribution through, 1 women and inheritance of wealth, 1 In Praise of Nepotism: A Natural History (Bellow), 1.1-1.2 A An Inquiry into the Nature and Causes of the Wealth of Nations (Smith), 1 I integrity, 1 , 2.1-2.2 inter vivo transfers, 1.1-1.2 , 2 , 3 , 4 investments, economic, 1 , 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11.1-11.2 , 12 , 13 IQ and IQ tests, 1.1-1.2 , 2.1-2.2 , 3 , 4 , 5 , 6 irregular economy, 1 , 2.1-2.2 , 3 , 4 J Jencks, Christopher, 1 , 2 jobs See occupations Jones, Janelle, 1.1-1.2 K Kildall, Gary, 1.1-1.2 Kozol, Jonathan, 1 L labor unions, 1 , 2 , 3.1-3.2 Lareau, Annette, 1.1-1.2 Lears, Jackson, 1 Lewis, Oscar, 1.1-1.2 Livingstone, David W., 1 , 2 lookism, 1 , 2 , 3 , 4 , 5 , 6 lottery, 1 , 2 , 3.1-3.2 , 4 lower class See working class luck denial of, 1.1-1.2 , 2 with gambling, 1 getting ahead, as a factor in, 1 , 2 , 3.1-3.2 lottery and, 1 , 2 as a nonmerit factor, 1 as part of capitalism, 1 in striking it rich, 1 , 2 wealth attainment and, 1 , 2.1-2.2 , 3 M marriage career interruptions due to, 1 marrying into money, 1 , 2 the poor and, 1 , 2.1-2.2 sexual discrimination and, 1.1-1.2 , 2 trailing partners and hiring practices, 1 upper class and, 1 , 2 , 3 , 4.1-4.2 , 5 Marx, Karl, 1 Maslow, Abraham, 1 , 2 Massey, Douglas S., 1 , 2 Matthew effect, 1 , 2 matrix of domination, 1.1-1.2 Medicare, 1 , 2.1-2.2 mentors, 1 , 2.1-2.2 , 3 , 4 , 5.1-5.2 meritocracy affirmative action and, 1 American promotion of merit, 1.1-1.2 , 2 , 3.1-3.2 , 4 , 5 , 6 coping strategies, 1 , 2 credentials, lack of as a barrier, 1.1-1.2 as a desired outcome, 1 discrimination as the antithesis of merit, 1.1-1.2 , 2.1-2.2 , 3 , 4 , 5 , 6 , 7.1-7.2 , 8 , 9.1-9.2 , 10 , 11 education as a merit filter, 1 , 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11 , 12 employment opportunities, 1.1-1.2 , 2.1-2.2 , 3 entrepreneurial success, 1 fairness of the system, 1 , 2.1-2.2 , 3 , 4 , 5 folklore of, 1 government spending and, 1.1-1.2 , 2 in the hiring process, 1.1-1.2 , 2 human capital factors, 1 , 2 , 3 income based on merit, 1 inheritance as a nonmerit factor, 1 , 2.1-2.2 , 3 , 4 , 5.1-5.2 , 6 , 7.1-7.2 , 8 , 9 , 10 , 11 , 12 , 13.1-13.2 intergenerational wealth transfers, 1.1-1.2 legacy preferences as nonmerit based, 1.1-1.2 , 2 luck as a nonmerit factor, 1 , 2 , 3 , 4 , 5.1-5.2 market trends, 1.1-1.2 meritocratic aristocracy, 1.1-1.2 nepotism as nonmeritorious, 1.1-1.2 the new elite as extra-meritorious, 1 noblesse oblige increasing potential for, 1 nonmerit factors suppressing merit, 1 , 2 , 3 , 4 , 5 Barack Obama as example of, 1.1-1.2 , 2 the past, reverence for, 1 physical attractiveness as a nonmerit factor, 1 , 2 pure merit system, 1.1-1.2 reform movements and, 1 , 2 self-employment as an expression of, 1 social and cultural capital as nonmerit factors, 1.1-1.2 , 2 , 3 , 4.1-4.2 , 5.1-5.2 , 6 , 7 , 8.1-8.2 , 9 , 10 , 11 structural mobility and, 1.1-1.2 talents and abilities of the merit formula, 1 , 2 , 3 , 4 , 5 , 6 taxes and nonmerit advantages, 1.1-1.2 Mexican Americans and Mexican immigrants, 1 , 2 , 3 , 4 Microsoft, 1.1-1.2 middle class America as not middle class, 1 asset building, 1 cultural capital, 1.1-1.2 deferment of gratification, 1 education and, 1 , 2 , 3 Great Recession affecting, 1 home ownership, 1 inner cities, flight from, 1 , 2 Barack Obama, background of, 1.1-1.2 old class vs. new, 1.1-1.2 precarious status of, 1.1-1.2 sports choices of, 1 upper-middle class, 1 , 2 T The Millionaire Mind (Stanley), 1 M millionaires, 1 , 2 , 3 minority groups affirmative action, 1.1-1.2 , 2.1-2.2 asset accumulation, 1.1-1.2 core employment, underrepresentation in, 1 disadvantages of, 1 discrimination experiences, 1 , 2.1-2.2 , 3 , 4.1-4.2 , 5 , 6.1-6.2 , 7 , 8 , 9 , 10 education issues, 1.1-1.2 as inner city dwellers, 1 opportunities expanding, 1 , 2 , 3 self-employment and, 1 social capital, lack of, 1 , 2 , 3 moral character, 1.1-1.2 , 2 Mormons, 1 Murray, Charles, 1.1-1.2 , 2 , 3.1-3.2 Muslims, 1.1-1.2 N National College Athletic Association (NCAA), 1 nepotism, 1.1-1.2 , 2 net worth affirmative action and, 1 defined, 1 by income group, 1 of minority groups, 1 of Barack Obama family, 1 of one percenters, 1 , 2 , 3 of Walton heirs, 1.1-1.2 wealth scale, 1.1-1.2 new elite, 1 , 2.1-2.2 noblesse oblige, 1.1-1.2 O Obama, Barack, 1.1-1.2 , 2 , 3 , 4 Obama, Michelle, 1.1-1.2 occupations attitude as a factor, 1 , 2 blue-collar jobs, 1 , 2 , 3 , 4 , 5 CEO salaries, 1.1-1.2 , 2 changes in opportunities, 1.1-1.2 , 2 cultural capital and, 1.1-1.2 , 2 the disabled and employment difficulties, 1 discrimination, 1 , 2 , 3.1-3.2 , 4 , 5 , 6 , 7 downsizing, 1.1-1.2 , 2 , 3 , 4 , 5 , 6 education linked to, 1 , 2.1-2.2 , 3.1-3.2 , 4.1-4.2 , 5 , 6.1-6.2 , 7.1-7.2 , 8 , 9.1-9.2 , 10.1-10.2 , 11 , 12.1-12.2 , 13 , 14.1-14.2 fastest growing jobs, 1.1-1.2 , 2.1-2.2 health hazards, 1 nepotism and, 1 , 2 occupational mobility, 1.1-1.2 , 2 occupational segregation, 1 , 2.1-2.2 outsourcing, 1.1-1.2 , 2 , 3 , 4 , 5 , 6 physical attraction and occupational success, 1 self-employment and, 1 self-made men, 1.1-1.2 social capital and occupational opportunities, 1 , 2 , 3 , 4 wages, 1.1-1.2 , 2 , 3 , 4 , 5.1-5.2 , 6.1-6.2 , 7.1-7.2 , 8 white-collar jobs, 1 , 2 , 3 , 4 , 5 , 6 Occupy Wall Street (OWS), 1 old boy networks, 1 , 2 , 3.1-3.2 old money, 1.1-1.2 , 2.1-2.2 Outliers: The Story of Success (Gladwell), 1 , 2 outsourcing, 1.1-1.2 , 2 , 3 , 4 , 5 , 6 ownership class, 1 , 2 , 3 , 4 P Paterson, Tim, 1 Peale, Norman Vincent, 1.1-1.2 pensions, 1.1-1.2 , 2 , 3 , 4 , 5 , 6 pink-collar ghetto, 1.1-1.2 poverty children affected by, 1 , 2 culture-of-poverty theory, 1.1-1.2 , 2 full-time work below poverty level, 1 as a matter of attitude, 1 meritocracy and, 1 , 2 minority rates of, 1 , 2 poverty threshold, 1 regional variations in poverty rates, 1.1-1.2 , 2 senior citizens and poverty rates, 1 U.S. poverty rates, 1 T The Power of Positive Thinking (Peale), 1.1-1.2 P Protestants and the Protestant ethic, 1.1-1.2 , 2 , 3 , 4 , 5 Puritan values, 1.1-1.2 R racism and racial issues affirmative action, 1.1-1.2 athletes and, 1 crime and the legal system, 1.1-1.2 disabilities, disproportionate experience of, 1 discrimination and, 1 , 2.1-2.2 , 3.1-3.2 , 4 , 5.1-5.2 , 6 , 7 , 8 in education, 1.1-1.2 employment, affecting, 1 Great Recession worsening racial equality, 1 home ownership, 1 ideologies of inequality, as part of, 1 income gaps, 1 language skills and, 1 Obama, election of, 1 , 2 scientific racism, 1.1-1.2 segregation, 1 , 2.1-2.2 , 3 social capital and, 1 , 2 , 3 , 4 white flight, 1 , 2 random-walk hypothesis, 1 recession See Great Recession references, 1 , 2 , 3 retirement as part of the American Dream, 1 , 2 delayment as a coping strategy, 1 , 2.1-2.2 , 3 home ownership and funding of, 1 as jeopardized, 1 , 2.1-2.2 proposed supplementation, 1 self-employment and, 1 , 2 , 3 right attitude, 1 , 2.1-2.2 , 3 , 4 , 5 , 6 , 7 T The Rise of Meritocracy, 1870–2033:An Essay on Education and Equality (Young), 1 , 2 R Rivera, Lauren, 1 Rosenau, Pauline Vaillancourt, 1.1-1.2 S Schmitt, John, 1.1-1.2 schools See education segregation educational, 1 , 2 , 3 occupational, 1 , 2 , 3 , 4.1-4.2 racial, 1 , 2.1-2.2 , 3 , 4 , 5 residential, 1 , 2 , 3.1-3.2 of the wealthy, 1.1-1.2 white flight, 1 See also discrimination self-employment American Dream, as exemplifying, 1 franchises, 1 freelancing, 1 , 2 income, 1.1-1.2 irregular economy and, 1.1-1.2 , 2 , 3 , 4 petty bourgeoisie and, 1 psychological characteristics, 1 rates of, diminished, 1 , 2 , 3 , 4.1-4.2 , 5 , 6 , 7.1-7.2 , 8 risk, 1 , 2 , 3.1-3.2 , 4 subcontractors, 1 taxes, 1.1-1.2 , 2 women and minorities, 1.1-1.2 self-help books, 1 , 2 self-made individuals, 1 , 2 , 3 , 4.1-4.2 , 5 , 6 sexual harassment, 1.1-1.2 Shapiro, Thomas, 1 , 2.1-2.2 slaves and slavery, 1 , 2 , 3 , 4 , 5 , 6 , 7 small businesses, 1 , 2 , 3 , 4 , 5.1-5.2 , 6 , 7.1-7.2 , 8 , 9 Smith, Adam, 1 social capital benefits of, 1.1-1.2 , 2 defined, 1 , 2 , 3 discrimination and, 1 , 2 economic opportunities, having access to, 1 , 2 , 3 education and, 1 , 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10 mentorship as a form of, 1 nepotism and, 1.1-1.2 , 2 racism and lack of, 1 , 2 , 3 , 4 restricted access, effects of, 1.1-1.2 , 2.1-2.2 social climbing, 1 , 2 , 3.1-3.2 , 4 of U.S. presidents, 1.1-1.2 weak ties, 1.1-1.2 social climbing, 1 , 2 , 3.1-3.2 , 4 social clubs, 1 , 2 , 3.1-3.2 social mobility athletic and artistic abilities, associated with, 1 , 2.1-2.2 , 3 cultural capital as a factor in, 1 education link, 1 , 2 , 3 hard work as a factor, 1 individual merit, 1 integrity hindering, 1.1-1.2 marrying for money, 1 reduction of opportunities, 1 , 2 during Republican administrations, 1 role of government, 1 , 2 social climbing, 1.1-1.2 , 2 status attainment, 1 through self-employment, 1 social reform movements, 1.1-1.2 Social Register, 1 social reproduction theory, 1.1-1.2 , 2 Social Security, 1.1-1.2 , 2 , 3 , 4 , 5.1-5.2 Something for Nothing: Luck in America (Lears), 1.1-1.2 T the South, 1 , 2.1-2.2 , 3 , 4 , 5 S Stanley, Thomas, 1 status-attainment theory, 1.1-1.2 Stevens, Mitchell, 1 stock market, 1 , 2 , 3 , 4 student loans, 1 , 2.1-2.2 success athletic success, 1 , 2.1-2.2 attitudes associated with, 1 , 2 , 3.1-3.2 birth timing and, 1.1-1.2 , 2 cultural capital, 1 , 2 , 3 , 4 discrimination, achieving success through, 1 education, as a factor in, 1 , 2 , 3 , 4 , 5 entrepreneurial success, 1 , 2 , 3 God’s grace, success as sign of, 1 , 2 hard work and, 1 , 2 , 3.1-3.2 , 4 , 5 human capital factors, 1 individualism as key to, 1 intelligence as a determinant, 1 luck as important, 1 meritocracy myth and, 1 mind-power ethic as success formula, 1.1-1.2 moral character and, 1 , 2 , 3.1-3.2 , 4 parental involvement, 1.1-1.2 , 2 , 3.1-3.2 the right stuff, being made of as key, 1.1-1.2 , 2.1-2.2 , 3 , 4 small businesses and, 1 social capital increasing likelihood of, 1 , 2 , 3 suburban living as marker of, 1 10,000 hour rule, 1 women and, 1 , 2 supply side, 1 , 2 , 3 , 4 , 5 , 6.1-6.2 Survival of the Prettiest (Etcoff), 1.1-1.2 Swift, Adam, 1.1-1.2 T talent and abilities American aristocracy, 1 American Dream, leading to, 1 of athletes and celebrities, 1 education enhancing, 1 , 2 , 3.1-3.2 functional theory of inequality, 1 jobs matched to talent, 1 success achieved through, 1 , 2 , 3 , 4 , 5 , 6 talent-use gap, 1 upward mobility and, 1 , 2.1-2.2 , 3.1-3.2 taxes capital gains, 1.1-1.2 estate taxes, 1 , 2 , 3.1-3.2 government policies linked with, 1 , 2 incentives and credits, 1.1-1.2 income taxes, lowered by Republicans, 1 irregular economy, avoiding, 1.1-1.2 progressive taxation, 1.1-1.2 , 2 , 3 , 4 property taxes and school funding, 1.1-1.2 self-employment and, 1.1-1.2 , 2 Social Security affected by, 1 , 2 the South and lower taxes, 1 tax breaks for the wealthy, 1 , 2 , 3 , 4.1-4.2 of urban areas, 1 , 2 Thurow, Lester, 1 , 2.1-2.2 Tocqueville, Alexis de, 1.1-1.2 , 2 tracking, 1 , 2.1-2.2 , 3 , 4 Turner, Frederick Jackson, 1.1-1.2 U Unequal Childhoods (Lareau), 1 upper class charitable giving and, 1 cultural capital, holders of, 1 , 2 , 3.1-3.2 , 4.1-4.2 , 5 deferred gratification, capability of, 1 distinctive lifestyle, 1.1-1.2 , 2 education, 1 , 2 endogamy, tendency towards, 1.1-1.2 as exclusive, 1.1-1.2 , 2 as isolated, 1.1-1.2 one percenters as members, 1 Plymouth Puritans as wellspring, 1 political power, 1.1-1.2 social clubs, frequenting, 1.1-1.2 virtues found in, 1 WASP background of, 1 women of, 1 , 2 , 3 upward mobility attitudes as affecting, 1 barriers to, 1 through college education, 1 credentialism and, 1 downward mobility, vs., 1 through entrepreneurialism, 1 glass ceiling as limiting, 1 integrity as suppressing, 1.1-1.2 irregular economy, as avenue, 1 marriage as a means of, 1.1-1.2 Michelle Obama as example, 1 slowing rates of, 1 See also social climbing See also social mobility V Vedder, Richard, 1 , 2 virtue, 1.1-1.2 , 2 , 3 , 4 , 5 , 6 , 7 W Walmart, 1 Walton, Sam, 1 , 2 , 3 wealth accumulation gaps, 1 , 2 , 3 advantages of wealth inheritance, 1 , 2.1-2.2 capital investments, 1 charitable giving and the wealthy, 1 , 2.1-2.2 culture of, 1 , 2 discrimination and, 1 , 2 distribution as skewed, 1.1-1.2 Forbes magazine listings, 1.1-1.2 gambling, attainment through, 1 government intervention, 1.1-1.2 , 2 Great Recession affecting, 1 guilt feelings, 1.1-1.2 hard work as negligible, 1 inequalities of, 1 , 2 , 3.1-3.2 , 4 , 5 , 6 , 7 , 8 , 9 lottery, wealth attainment through, 1 luck as a factor, 1 , 2.1-2.2 , 3 marriage rates, affecting, 1 nepotism aiding in transference of, 1 old money, 1.1-1.2 , 2.1-2.2 one percenters, 1 , 2 , 3 , 4 , 5 ostentatious displays of, 1 political power, 1.1-1.2 property ownership producing, 1 , 2 pursuit of as a moral issue, 1.1-1.2 , 2 race affecting, 1 social and cultural capital, converted to, 1 , 2 the superwealthy, 1 , 2 , 3 , 4.1-4.2 tax breaks for the wealthy, 1 taxes on, 1.1-1.2 transfers of, 1.1-1.2 , 2 , 3.1-3.2 women and, 1 See also inheritance See also self-employment Weber, Max, 1.1-1.2 welfare, 1 , 2 , 3 , 4 , 5 , 6 , 7 white Anglo-Saxon Protestants (WASPs), 1.1-1.2 , 2 white-collar crime, 1.1-1.2 , 2 Wilson, William Julius, 1 , 2 Winfrey, Oprah, 1.1-1.2 Wisconsin school, 1.1-1.2 women attractiveness as a success factor, 1 , 2 , 3.1-3.2 discrimination against, 1 , 2 , 3 , 4 , 5.1-5.2 , 6.1-6.2 , 7.1-7.2 , 8.1-8.2 , 9.1-9.2 , 10 economic disparities, 1 , 2 , 3.1-3.2 educational attainment, 1.1-1.2 , 2 family concerns, 1.1-1.2 , 2.1-2.2 , 3.1-3.2 glass ceiling, experiencing, 1 , 2 , 3.1-3.2 , 4 inferiority, feelings of, 1.1-1.2 labor force participation, increasing, 1.1-1.2 , 2 mentorships, access to, 1 , 2.1-2.2 occupational disparities, 1 , 2 , 3.1-3.2 , 4.1-4.2 , 5.1-5.2 political underrepresentation, 1.1-1.2 self-employment and, 1.1-1.2 as trailing partners, 1 of the upper class, 1 , 2 , 3 working class American Dream and, 1 cultural capital, lack of, 1.1-1.2 , 2 economic instability, 1.1-1.2 education issues, 1 , 2 , 3 hard work and, 1 health risks, 1 home ownership, 1 lower class value stretch, 1 nepotism, effect of, 1 the new lower class, 1 women and incomes, 1 work See hard work See occupations Y Young, Michael, 1 , 2 About the Authors Stephen J.

Big Debt Crises by Ray Dalio

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

Over the second half of 1930, the economy clearly began to weaken. From May through December, department store sales fell 8 percent and industrial production fell 17.6 percent. Over the course of the year, the rate of unemployment rose by over 10 percent (to 14 percent) and capacity utilization fell by 12 percent (to 67 percent). Housing and mortgage debt collapsed. Still, at that point, the decline in the economy was more akin to a shallow recession. For example, levels of consumer spending remained above the lows of previous recessions and many industries were not yet suffering from severe declines. The charts below show how both department store sales and industrial production had slipped but had not yet collapsed to the lows of the prior recession (the gray bars highlight 1930).

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In other words, the market was tranquil and priced to stay that way. Problems emanating out of subprime mortgage lenders—those that focused on mortgages for less credit-worthy borrowers—continued to grow, with some facing considerable losses, but they did not affect the broader economy and markets. Still, bigger banks were starting to report a rise in bad mortgage debts. We summarized the situation (in our March 13 Daily Observations) as follows: (BDO) March 13: Subprime Mortgage Fallout Subprime mortgages have been grabbing the headlines, with several of the larger subprime mortgage lenders teetering on the edge of bankruptcy. The story of how the subprime mortgage sector is blowing up even with a relatively strong economy relates closely to the liquidity that is bubbling up in markets around the world.

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I especially admired how the Chinese creditors approached this situation analytically and with a high level of consideration. Ironically the larger the GSEs grew, the more “systemically important” they became, which in turn all but guaranteed a government rescue if needed, making them safer and further fueling their growth. Although Fannie and Freddie were supposed to generate revenue primarily through insuring mortgage debt, by 2007 about two-thirds of their profits came from holding risky mortgage-backed securities. The problems associated with having these exposures were made worse by lax regulation. Congress only required Freddie and Fannie to keep 0.45 percent of their off-balance-sheet obligations and 2.5 percent of their portfolio assets in reserves, meaning that they were significantly undercapitalized, even when compared with commercial banks of equivalent size, which were also severely undercapitalized (meaning that it only took a modest loss to make them go broke).

Wall Street: How It Works And for Whom by Doug Henwood

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, affirmative action, Alan Greenspan, Andrei Shleifer, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, bond market vigilante , book value, borderless world, Bretton Woods, British Empire, business cycle, buy the rumour, sell the news, capital asset pricing model, capital controls, Carl Icahn, central bank independence, computerized trading, corporate governance, corporate raider, correlation coefficient, correlation does not imply causation, credit crunch, currency manipulation / currency intervention, currency risk, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, dematerialisation, disinformation, diversification, diversified portfolio, Donald Trump, equity premium, Eugene Fama: efficient market hypothesis, experimental subject, facts on the ground, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, George Akerlof, George Gilder, Glass-Steagall Act, hiring and firing, Hyman Minsky, implied volatility, index arbitrage, index fund, information asymmetry, interest rate swap, Internet Archive, invisible hand, Irwin Jacobs, Isaac Newton, joint-stock company, Joseph Schumpeter, junk bonds, kremlinology, labor-force participation, late capitalism, law of one price, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, London Interbank Offered Rate, long and variable lags, Louis Bachelier, low interest rates, market bubble, Mexican peso crisis / tequila crisis, Michael Milken, microcredit, minimum wage unemployment, money market fund, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, oil shock, Paul Samuelson, payday loans, pension reform, planned obsolescence, plutocrats, Post-Keynesian economics, price mechanism, price stability, prisoner's dilemma, profit maximization, proprietary trading, publication bias, Ralph Nader, random walk, reserve currency, Richard Thaler, risk tolerance, Robert Gordon, Robert Shiller, Savings and loan crisis, selection bias, shareholder value, short selling, Slavoj Žižek, South Sea Bubble, stock buybacks, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Market for Lemons, The Nature of the Firm, The Predators' Ball, The Wealth of Nations by Adam Smith, transaction costs, transcontinental railway, women in the workforce, yield curve, zero-coupon bond

Official statisticians argue that they are trying to separate the consumption and investment aspects of housing; though people do speculate in primary residences, hoping to make a killing on a well-timed purchase or sale, most of these gains are rolled into the acquisition of a new house. FoF accountants, free of the prejudice that only businesses invest, continue to treat housing purchases as investment, but shift most activity to the household sector. One practical advantage of this is to expose the sharp increase in mortgage debt relative to the underlying value of the housing. In 1945, home mortgages outstanding were 14% of the value of all owner-occupied housing; this rose steadily to 34% in 1965, fell gently into the high 20s in the late 1970s and early 1980s, and then rose with hardly a pause to a record 43% in 1997.

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WALL STREET But unless people are willing to sell their houses, or turn them over to the bank, that equity is even more purely fictitious than a stock option, especially if house prices are stagnant or declining. If the owner-occupier loses his or her job, the inadequacy of the home as capital asset comes quickly clear: it demands cash without producing any in return. You can't pay the mortgage banker with imputed rent. Or as the Fed puts it, the increase in mortgage debt has been "unrelated to new capital formation" (Federal Reserve Board 1980, p. 31), a formulation that if carried to the extreme suggests inflation, insolvency, or some unpleasant combination of both as its ultimate resolution. Carried short of that apocalyptic resolution, it suggests strains on personal housing budgets for all but the most affluent.

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The rich need a place to earn interest on their surplus funds, and the rest of the population makes a juicy lending target. Just how this works out can be seen in data from the 1983 survey, unfortunately, the Fed didn't publish the 1995 survey data in sufficient detail. In 1983, leaving aside the primary residence and mortgage debt on it, over half of all families were net debtors, and fewer than 10% accounted for 85% of the household sector's net lending (Avery et al. 1984). As William Greider (1987, p. 39) put it, the few lend to the many. At the end of 1997, U.S. households spent $1 trillion, or 17% of their after-tax incomes, on debt service — just a smidgen below 1989's record of 17.4% (unpublished Federal Reserve staff estimates).

J.K. Lasser's New Tax Law Simplified: Tax Relief From the HIRE Act, Health Care Reform, and More by Barbara Weltman

accelerated depreciation, Affordable Care Act / Obamacare, Bernie Madoff, employer provided health coverage, estate planning, Home mortgage interest deduction, independent contractor, mortgage debt, Ponzi scheme

The benefit can be in the form of a tax reduction or tax rebate. In most places, the tax break is tied to home ownership in the form of a property tax reduction or rebate. Alert This break runs only for 2008, 2009, and 2010, unless it is extended; check the Supplement for details. Cancellation of Mortgage Debt You may be “underwater” with your mortgage (what you owe is more than your home is now worth). If some or all of the remaining balance on the loan is forgiven because of a foreclosure, a mortgage workout, or a short sale (which avoids the need for foreclosure), the amount forgiven usually is treated as taxable income.

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See High-deductible health plan (HDHP) Head of household, tax rate schedule, 114 Health care, expiring tax laws, 166–167 Health coverage: children under 27, 23–24 displaced workers, credit, 35 enhanced credit, 166 health insurance premium assistance credit, 23 mandatory, 21–22 planning strategies, 22–23 on W-2 form, 24 Health coverage credit, displaced workers, 35–36 Health reimbursement accounts (HRAs), 29–30 Health savings accounts (HSAs): eligibility for, 28 HDHP limits for 2010/2011, 28 online planning tools, 171 planning strategies, 28–29 triple tax benefit, 27 High-deductible health plan (HDHP), 27, 28 High-income taxpayers: additional Medicare tax, 100, 148–149 itemized deductions and, 168 personal and dependency exemptions, 10 High-low substantiation rates, 137 Hiring incentives, 139–143 Home: energy credits, 6–7 energy improvements, 165–166 expiring tax laws, 165–166 loss on sale of residence, 9 mortgage debt cancellation, 8–9 online planning tools, 171 Homebuyers’ tax credit: amount/expiration date of, 165 claiming of, 4–5 conditions to meet, 2 deadline/occupancy dates, 1–2 MAGI and, 2–3 planning strategies, 6 recapture, 5 types of, 2 Home office deduction, 139 Hope credit, 36, 37 Household employees, 18–19 HSAs.

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See also FICA additional, in 2013, 18, 91, 100, 148–149 paying additional tax, 100–101 planning strategies, 101 self-employment tax and, 150 Mid-quarter convention, 130–131 Mileage. See Standard mileage rate Military personnel, combat pay exclusion, 12 Modified adjusted gross income (MAGI), 2–3 Mortgage debt: debt, cancellation of, 8–9 insurance premiums, 165 Moving expenses, 9–10 Multiyear items, deduction for, 125 “Nanny tax,” 18–19 Net operating loss, 86 Net operating loss (NOL), 128, 129, 131 NOL. See Net operating loss (NOL) Nondeductible IRAs, 49 Office supplies, 124–125 Online planning tools: business, 173 estate tax, 174 health care/education, 172 home/family, 171 investment opportunities, 172 job, 173 miscellaneous, 173 retirement planning, 172 PAL.

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

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

Despite the long-term damage to the economy inflicted by the government’s interference in the housing market, the government’s policy of diverting capital to other uses creates a short-term boom in housing. Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing. Perhaps the Federal Reserve can stave off the day of reckoning by purchasing GSE debt and pumping liquidity into the housing market, but this cannot hold off the inevitable drop in the housing market forever.

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There is only the expectation that payment for today’s consumption can be rolled forward interminably. No one who buys a government bond today expects that it will be paid at maturity except by the issuance of another bond tomorrow. In fact, this facile dismissal—“we owe it to ourselves”—could have been made about America’s escalating mortgage debt before the house of cards collapsed. In any event, it can’t be said we owe the national debt to ourselves any longer. We are increasingly dependent on foreigners whose holdings are now more than 25 percent of our national debt, double what it was twenty years ago. On average, a family of four is paying more than $130 per month just in interest to foreign holders of American debt.

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One need only remember the fabled Goldilocks economy of previous Federal Reserve chairman Alan Greenspan, the Maestro: “It was not too hot and not too cold, but just right!” Of course, Greenspan also admits he didn’t “get it” about the housing bubble until very late, in 2005 and 2006, despite home mortgage debt growing from $1.8 trillion to $8 trillion during his tenure. Nor did he foresee the stock market bubble before it popped in 2000. And he somehow missed the recession of the early 1990s. Greenspan’s successor, Ben Bernanke, didn’t get it either. As chairman of the President’s Council of Economic Advisers in October 2005, he told Congress that he wasn’t concerned about a housing bubble.

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

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

So it is no coincidence that the single most important source of funds for a new business in the United States is a mortgage on the entrepreneur’s house. Correspondingly, financial institutions have become ever less inhibited about lending money to people who want to buy property. Since 1959, the total mortgage debt outstanding in the US has risen seventy-five fold. Altogether, American owner-occupiers owed a sum equivalent to 99 per cent of US gross domestic product by the end of 2006, compared with just 38 per cent fifty years before. This upsurge in borrowing helped to finance a boom in residential investment, which reached a fifty-year peak in 2005.

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Indeed, it is not too much to say that the modern United States, with its seductively samey suburbs, was born here. From the 1930s onwards, then, the US government was effectively underwriting the mortgage market, encouraging lenders and borrowers to get together. That was what caused property ownership - and mortgage debt - to soar after the Second World War, driving up the home ownership rate from 40 per cent to 60 per cent by 1960. There was only one catch. Not everyone in American society was entitled to join the property-owning party. In 1941 a real estate developer built a six-foot high wall right across Detroit’s 8 Mile district.

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Between 1980 and 2007 the volume of such GSE-backed mortgage-backed securities grew from $200 million to $4 trillion. With the advent of private bond insurers, firms like Salomon could also offer to securitize so-called non-conforming loans not eligible for GSE guarantees. By 2007 private pools of capital sufficed to securitize $2 trillion in residential mortgage debt.52 In 1980 only 10 per cent of the home mortgage market had been securitized; by 2007 it had risen to 56 per cent.ar It was not only human vanities that ended up on the bonfire that was 1980s Wall Street. It was also the last vestiges of the business model depicted in It’s a Wonderful Life. Once there had been meaningful social ties between mortgage lenders and borrowers.

Utopia or Bust: A Guide to the Present Crisis by Benjamin Kunkel

Alan Greenspan, Anthropocene, anti-communist, Bear Stearns, Bretton Woods, business cycle, capital controls, Carmen Reinhart, creative destruction, David Graeber, declining real wages, full employment, Hyman Minsky, income inequality, late capitalism, Lewis Mumford, liberal capitalism, liquidity trap, means of production, money: store of value / unit of account / medium of exchange, mortgage debt, Occupy movement, peak oil, price stability, profit motive, public intellectual, savings glut, Slavoj Žižek, The Wealth of Nations by Adam Smith, transatlantic slave trade, vertical integration, War on Poverty, We are the 99%, women in the workforce, Works Progress Administration, zero-sum game

So the credit system that had seemed to insure against one kind of overaccumulation (of commodity capital) by advancing money against future production now seems to have fostered another kind of overaccumulation (of fictitious capital) by promising more production than has occurred. More housing has been created than builders can sell at a profit; more mortgage debt has been issued than can be repaid, through wage income, to ensure the lenders’ profit; homeowners who took out loans against the rising value of their property find that prices are instead plummeting; and with the collapse of the housing sector more money capital now lies in the hands of its owners than they can see a way to invest profitably.

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After listing several of the more spectacular property-market collapses of the long downturn (worldwide in 1973–75; Japanese in 1990; Thai and Indonesian in 1997), Harvey added that the most important prop to the US and British economies after the onset of general recession in all other sectors from mid-2001 onwards was the continued speculative vigor in the property and housing markets and construction. In a curious backwash effect, we find that some 20 percent of GDP growth in the United States in 2002 was attributable to consumers refinancing their mortgage debt on the inflated values of their housing and using the extra money they gained for immediate consumption (in effect, mopping up overaccumulating capital in the primary circuit). British consumers borrowed $19 billion in the third quarter of 2002 alone against the value of their mortgages to finance consumption.

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

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

See also digital currency money market mutual funds and rescue program, 31, 103, 147–9, 151, 157, 163, 171, 182–3, 208, 216, 238, 292–3 money printer memes and paraphernalia, 185–6 Money Trust, 56 moral hazard, 94, 120 Morgan, John Pierpont, 52–4, 53n, 54n, 56, 60–1, 66 Morgan Stanley, 155–6, 157, 169 Morse, Charles, 52 mortgage debt. See housing market and mortgage debt Mulvaney, Mick, 107, 222 municipal/state and local government bonds, 152, 167–8, 207–9, 211, 213, 237–8, 248, 258–9, 294, 350n10, 350n31 N national bank notes, 48, 53 National Reserve Bank of Washington, 58 Network for Greening the Financial System (NGFS), 266–7, 269–70, 270n New Deal, 67 news conferences.

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The Fed had relatively few tools to neatly address the growing vulnerabilities, some of which fell under the purview of other regulators, and it had been slow to use those it did have. It did not want to choke off business needlessly and it did not recognize the extent of the problem until too late. It had been quick, however, to save the system as the mortgage debt piles began to crumble, working with the elected government to roll out rescue programs for the bank Bear Stearns and the insurer American International Group. Under Ben Bernanke’s leadership, the Fed had dusted off its emergency lending powers to backstop an array of markets, and it enacted three massive bond-buying programs between 2008 and 2014.

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., 118, 287 Great Inflation, 79, 93, 115 Great Moderation, 81 greenback currency, 48–50 Greenback Party and movement, 50, 226 Greenspan, Alan: appearance of, 85; background and expertise of, 23, 83; Bernanke as successor to, 89; chairmanship of, 23, 24, 82–9, 90–2, 96–7; congressional testimony of, 85–8; economy during chairmanship of, 23, 82–3; regulation under, 90–2; secretive Fed under, 23, 23n, 83–9, 88n; on transparency of Fed, 201 H Hamilton, Alexander, 45–6, 338n85 Hamlin, Charles Sumner, 60, 160 hedge funds, 31, 35, 103, 147, 149, 169, 171–2, 171n, 193, 194, 216, 292, 345n12 Heinze, F. Augustus, 51–2 Heinze, Otto, 51–2 Hiteshew, Kent, 208, 350n31 Holston, Kathryn, 115 Hoover, Herbert, 159, 180 housing market and mortgage debt: financial crisis of 2008 and Fed policy, 4, 24–5; home ownership and income and wealth inequality, 224, 225–6, 348n22; inflation and housing costs, 285, 288; management by Fed under Volcker, 79; overextended housing market and mortgage lending practices, 89–92, 120–1 Humphrey, Hubert, 80 Hutchins, Glenn, 129, 129n, 199 Hutchins Center on Fiscal and Monetary Policy, 129n I income inequality, 113n, 223–9, 227n, 348nn13–14, 348n19 inflation: bond buying by Fed and, 5, 72–4, 72n, 113–14, 285–7, 286n; employment, unemployment rates, and, 6, 18–19, 22, 76–82, 96–7, 97n, 100–2, 234, 236–7, 239–44; gradualism of Fed and control over, 26–7, 73, 100–2; growth of and effects on the economy, 6, 22, 22n; lowering to support economic growth, 12; management by Fed, 4, 6, 8, 12, 18–19, 21–2, 27, 61–2, 78–9; management by Fed under Powell, 105–8, 283–91, 294–5, 301; management by Fed under Truman administration, 71–4, 72n, 339n9; management by Fed under Volcker, 79–82, 86, 94, 286; modern monetary theory and, 351n1; price increases and, 77–9, 280–1, 283, 285, 287–9, 352n10; revival of after government pandemic spending, 41; shipping and supply chain issues and, 280–1, 286–7; stimulus checks and, 281–3, 281n, 351n1; too-low inflation, 97, 340n25; 2 percent inflation on average goal, 239–44, 284, 286; 2 percent inflation target, 95–8, 102, 115, 340n25; unrest and political consequences related to, 73; wages and, 22, 79, 283, 284–5, 287–9 insurance program as market backstop, 176–7, 191, 256, 345n25 interest rates: announcement of federal funds rate change, 88–9, 89n, 340n12; bond-buying program and setting, 32n, 93; cuts by Fed during pandemic, 137–8, 142–4, 148, 150, 167; discount rate, 77, 77n, 89n; employment, unemployment rates, and, 232, 237, 239–44, 349n11; federal funds rate, 77n, 83–4, 88–9, 89n, 340n12, 341n9; lowering to support economic growth, 4–5, 21–2, 108–10, 111–16, 341n9; management by Fed, 4, 12, 61–2, 279; management by Fed under Powell, 105–8, 122, 286–7, 301, 341n22; management by Fed under Truman administration, 73–4; management by Fed under Volcker, 79–82, 83–4; market reaction to cuts in, 143–4; monetary policy, economic trends, and, 111–16; neutral rate and policy, 106, 111–12, 128; nominal rate, 22n; raising to curb risky investments, 170–1; raising to slow economic growth, 12, 18–19, 239–44, 349n11; Trump’s interest in low rates, 20 International Monetary Fund (IMF), 114, 196 internet and technology companies and the dot-com bubble, 83, 228 J Jackson, Andrew, 46–8 Jackson Hole monetary policy conferences, 238–9, 240–1, 284 January 6 riots, 281n Japan: Bank of Japan, 94; economy of, 112, 114; national debt of, 293; summer Olympics in, 186 Jekyll Island Club meeting (First Name Club), 54–6, 54n, 60–1, 200 Johnson, Lyndon, 80 JP Morgan Chase, 52, 155, 156, 157 junk bonds, 31, 152, 167, 173, 177, 209–11 K Kaplan, Robert, 206n, 243, 285, 295, 349n11 Kashkari, Christine Ong, 38–9, 201 Kashkari, Neel: candidacy for California governorship of, 38; career in private sector of, 37–8, 38n; community outreach events, opinion about, 233; family and family life of, 38–9; inflation policy concerns of, 287–8; labor market and interest rate policies of, 232, 244; labor market status, awareness of, 132–3n; Minneapolis Fed presidency of, 6–7, 37, 38–9, 198–9, 230; pandemic policy response and message of, 38–40; pandemic policy response thinking of, 198–201; PPP role of, 206; pro-worker posture of, 38, 287–8; shift in thinking of, 7; statement on Floyd’s murder and police action, 221–3; suspension of bank payments, opinion about, 215; TARP role of, 37, 38, 199, 201, 214; Treasury Department position of, 7, 37 Keynes, John Maynard, 67, 75 Keynesian doctrine, 67, 77, 79, 83, 100, 101, 234 Kohn, Don, 129n Kudlow, Larry, 105 L labor market.

Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America by Matt Taibbi

addicted to oil, affirmative action, Affordable Care Act / Obamacare, Alan Greenspan, Bear Stearns, Bernie Sanders, Bretton Woods, buy and hold, carried interest, classic study, clean water, collateralized debt obligation, collective bargaining, computerized trading, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, David Brooks, desegregation, diversification, diversified portfolio, Donald Trump, financial innovation, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, Greenspan put, illegal immigration, interest rate swap, laissez-faire capitalism, London Interbank Offered Rate, Long Term Capital Management, margin call, market bubble, medical malpractice, military-industrial complex, money market fund, moral hazard, mortgage debt, Nixon triggered the end of the Bretton Woods system, obamacare, passive investing, Ponzi scheme, prediction markets, proprietary trading, prudent man rule, quantitative easing, reserve currency, Ronald Reagan, Savings and loan crisis, Sergey Aleynikov, short selling, sovereign wealth fund, too big to fail, trickle-down economics, Y2K, Yom Kippur War

Greenspan’s frantic deregulation of the financial markets in the late nineties had led directly to the housing bubble; in particular, the deregulation of the derivatives market had allowed Wall Street to create a vast infrastructure for chopping up mortgage debt, disguising bad loans as AAA-rated investments, and selling the whole mess off on a secondary market as securities. Once Wall Street perfected this mechanism, it was suddenly able to create hundreds of billions of dollars in crap mortgages and sell them off to unsuspecting pension funds, insurance companies, unions, and other suckers as grade-A investments, as I’ll detail in the next chapter. The amount of new lending was mind-boggling: between 2003 and 2005, outstanding mortgage debt in America grew by $3.7 trillion, which was roughly equal to the entire value of all American real estate in the year 1990 ($3.8 trillion).

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Here’s how that scenario looks: You buy a $500,000 house, with no money down, which means you take out a mortgage for the full $500,000. Then instead of paying the 5 percent monthly interest payment, which would be $2,500 a month, you pay just $500 a month, and that $2,000 a month you’re not paying just gets added to your mortgage debt. Within a couple of years, you don’t owe $500,000 anymore; now you owe $548,000 plus deferred interest. “If you’re making the minimum payment, you could let your mortgage go up to 110 percent, 125 percent of the loan value,” says Andy. “Sometimes it went as high as 135 percent or 140 percent. It was crazy.”

The Big Short: Inside the Doomsday Machine by Michael Lewis

Alan Greenspan, An Inconvenient Truth, Asperger Syndrome, asset-backed security, Bear Stearns, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, diversified portfolio, facts on the ground, financial engineering, financial innovation, fixed income, forensic accounting, Gordon Gekko, high net worth, housing crisis, illegal immigration, income inequality, index fund, interest rate swap, John Meriwether, junk bonds, London Interbank Offered Rate, Long Term Capital Management, low interest rates, medical residency, Michael Milken, money market fund, moral hazard, mortgage debt, pets.com, Ponzi scheme, Potemkin village, proprietary trading, quantitative trading / quantitative finance, Quicken Loans, risk free rate, Robert Bork, short selling, Silicon Valley, tail risk, the new new thing, too big to fail, value at risk, Vanguard fund, zero-sum game

"The thinking in subprime," says Jacobs, "was there was this social stigma to being a second mortgage borrower and there really shouldn't be. If your credit rating was a little worse, you paid a lot more--and a lot more than you really should. If we can mass market the bonds, we can drive down the cost to borrowers. They can replace high interest rate credit card debt with lower interest rate mortgage debt. And it will become a self-fulfilling prophecy." The growing interface between high finance and lower-middle-class America was assumed to be good for lower-middle-class America. This new efficiency in the capital markets would allow lower-middle-class Americans to pay lower and lower interest rates on their debts.

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Of course, Eisman was paid to see the sense in subprime lending: Oppenheimer quickly became one of the leading bankers to the new industry, in no small part because Eisman was one of its leading proponents. "I took a lot of subprime companies public," says Eisman. "And the story they liked to tell was that 'we're helping the consumer. Because we're taking him out of his high interest rate credit card debt and putting him into lower interest rate mortgage debt.' And I believed that story." Then something changed. Vincent Daniel had grown up in Queens, without any of the perks Steve Eisman took for granted. And yet if you met them you might guess that it was Vinny who had grown up in high style on Park Avenue and Eisman who had been raised in the small duplex on Eighty-second Avenue.

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Back in July 2003, he'd written them a long essay on the causes and consequences of what he took to be a likely housing crash: "Alan Greenspan assures us that home prices are not prone to bubbles--or major deflations--on any national scale," he'd said. "This is ridiculous, of course.... In 1933, during the fourth year of the Great Depression, the United States found itself in the midst of a housing crisis that put housing starts at 10% of the level of 1925. Roughly half of all mortgage debt was in default. During the 1930s, housing prices collapsed nationwide by roughly 80%." He harped on the same theme again in January 2004, then again in January 2005: "Want to borrow $1,000,000 for just $25 a month? Quicken Loans has now introduced an interest only adjustable rate mortgage that gives borrowers six months with both zero payments and a 0.03% interest rate, no doubt in support of that wholesome slice of Americana--the home buyer with the short term cash flow problem."

The Investopedia Guide to Wall Speak: The Terms You Need to Know to Talk Like Cramer, Think Like Soros, and Buy Like Buffett by Jack (edited By) Guinan

Albert Einstein, asset allocation, asset-backed security, book value, Brownian motion, business cycle, business process, buy and hold, capital asset pricing model, clean water, collateralized debt obligation, computerized markets, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, discounted cash flows, diversification, diversified portfolio, dividend-yielding stocks, dogs of the Dow, equity premium, equity risk premium, fear index, financial engineering, fixed income, Glass-Steagall Act, implied volatility, index fund, intangible asset, interest rate swap, inventory management, inverted yield curve, junk bonds, London Interbank Offered Rate, low interest rates, margin call, money market fund, mortgage debt, Myron Scholes, passive investing, performance metric, risk free rate, risk tolerance, risk-adjusted returns, risk/return, shareholder value, Sharpe ratio, short selling, short squeeze, statistical model, time value of money, transaction costs, yield curve, zero-coupon bond

Investopedia explains Mortgage In a residential mortgage, a home buyer pledges his or her house to the bank. The bank has a claim on the house if the home buyer defaults on paying the mortgage. In the case of a foreclosure, the bank may evict the home’s tenants and sell the house, using the income from the sale to pay off the mortgage debt. Related Terms: • Debt • Fannie Mae—Federal National Mortgage Association (FNMA) • Interest • Liability • Mortgage-Backed Security The Investopedia Guide to Wall Speak 187 Mortgage Forbearance Agreement What Does Mortgage Forbearance Agreement Mean? An agreement made between a mortgage lender and a delinquent borrower by which the lender agrees not to exercise its legal right to foreclose on a mortgage and the borrower agrees to a mortgage plan that will, over a specified period, bring the borrower current on his or her payments.

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For example, if a company has $45 million worth of liabilities and $65 million in assets, the company’s net worth (shareholders’ equity) is $20 million ($65 million – $45 million). Alternatively, say an individual has three assets—$100,000 of common stock, $30,000 worth of bonds, and title to a $190,000 house—and only one liability—$150,000 in mortgage debt. This individual’s net worth would be $170,000 ([$100,000 + $30,000 + $190,000] – $150,000). Related Terms: • Asset • Debt • Mortgage • Balance Sheet • Liabilities • Shareholders’ Equity The Investopedia Guide to Wall Speak 201 New York Stock Exchange (NYSE) What Does New York Stock Exchange (NYSE) Mean?

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See Coefficient of variation (CV); Convertible bond DCA. See Dollar cost averaging (DCA) DCF. See Discounted cash flow (DCF) DD. See Due diligence (DD) DDM. See Dividend discount model (DDM) Dead cat bounce, 65 Dealer. See Broker-dealer Debenture, 65-66 Debt, 66, 167-168 Debt financing, 66-67. See also Leverage; Liability; Mortgage Debt ratio, 67, 117-118 Debt/equity ratio, 67-68, 118, 168 Debt-to-capital ratio, 68-69 Default, 4, 58, 289 Default risk. See Counterparty risk Defined-benefit plan, 69-70, 153-154, 241 Defined-contribution plan, 70, 153-154, 241 Deflation, 70 Deleverage, 71 Delta, 71-72, 117 Delta hedging, 72 Demand, 73, 156 Depreciation, 73-74 Depression, 29, 120, 131-132 Derivative, 74, 319, 366.

Trade Wars Are Class Wars: How Rising Inequality Distorts the Global Economy and Threatens International Peace by Matthew C. Klein

Alan Greenspan, Albert Einstein, Asian financial crisis, asset allocation, asset-backed security, Berlin Wall, Bernie Sanders, Branko Milanovic, Bretton Woods, British Empire, business climate, business cycle, capital controls, centre right, collective bargaining, currency manipulation / currency intervention, currency peg, David Ricardo: comparative advantage, deglobalization, deindustrialization, Deng Xiaoping, Donald Trump, Double Irish / Dutch Sandwich, Fall of the Berlin Wall, falling living standards, financial innovation, financial repression, fixed income, full employment, George Akerlof, global supply chain, global value chain, Great Leap Forward, high-speed rail, illegal immigration, income inequality, intangible asset, invention of the telegraph, joint-stock company, land reform, Long Term Capital Management, low interest rates, Malcom McLean invented shipping containers, manufacturing employment, Martin Wolf, mass immigration, Mikhail Gorbachev, Money creation, money market fund, mortgage debt, New Urbanism, Nixon triggered the end of the Bretton Woods system, offshore financial centre, oil shock, open economy, paradox of thrift, passive income, reserve currency, rising living standards, Robert Shiller, Ronald Reagan, savings glut, Scramble for Africa, sovereign wealth fund, stock buybacks, subprime mortgage crisis, The Nature of the Firm, The Wealth of Nations by Adam Smith, Tim Cook: Apple, trade liberalization, Wolfgang Streeck

The shrinking credit supply reinforced the decline in home values, and the spending cuts, and the job losses, and the defaults, which reinforced the tightening standards. The process that had built paper wealth and boosted consumption on the way up now threatened economic collapse on the way down.34 Despite the explosion of mortgage debt, America did not experience an economic boom. It was not Greece or Ireland or Spain. As in Germany, sharply higher inequality, anemic corporate capital spending, and relatively tight fiscal policy all dampened U.S. domestic demand. Private fixed investment spending net of depreciation and inflation remained below the 2000 peak until 2014.

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Even though crime rates plunged nationally in the past two decades, crime rates in the places most exposed to low-cost import competition slightly increased.38 Fig. 6.5 International value of the U.S. dollar (real trade-weighted index, January 1988 = 100). Sources: Federal Reserve Board; Matthew Klein’s calculations The problem was the rest of the world’s voracious demand for dollar-denominated assets. In addition to inflating the mortgage debt bubble, overabundant foreign financing also savaged America’s terms of trade as trillions of dollars of uneconomic asset purchases distorted the U.S. exchange rate. Between the start of 1997—the eve of the Asian Financial Crisis—and the beginning of 2002, the dollar appreciated by more than 20 percent against the currencies of its trading partners.

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FRED Economic Data, “Federal Debt Held by the Public,” https://fred.stlouisfed.org/series/FYGFDPUN; FRED Economic Data, “Federal Debt Held by Foreign and International Investors,” https://fred.stlouisfed.org/series/FDHBFIN; Treasury Department Fiscal Service, Monthly Bulletin; FRB, “Financial Accounts of the United States,” https://www.federalreserve.gov/releases/z1/current/default.htm; FRB, “Mortgage Debt Outstanding,” https://www.federalreserve.gov/data/mortoutstand/current.htm; SIFMA statistics, “US Mortgage-Related Issuance and Outstanding,” https://www.sifma.org/resources/research/us-mortgage-related-issuance-and-outstanding/; SIFMA statistics, “US ABS Issuance and Outstanding,” https://www.sifma.org/resources/research/us-abs-issuance-and-outstanding/. 34.

The Price of Time: The Real Story of Interest by Edward Chancellor

"World Economic Forum" Davos, 3D printing, activist fund / activist shareholder / activist investor, Airbnb, Alan Greenspan, asset allocation, asset-backed security, assortative mating, autonomous vehicles, balance sheet recession, bank run, banking crisis, barriers to entry, Basel III, Bear Stearns, Ben Bernanke: helicopter money, Bernie Sanders, Big Tech, bitcoin, blockchain, bond market vigilante , bonus culture, book value, Bretton Woods, BRICs, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, cashless society, cloud computing, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, commodity super cycle, computer age, coronavirus, corporate governance, COVID-19, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cryptocurrency, currency peg, currency risk, David Graeber, debt deflation, deglobalization, delayed gratification, Deng Xiaoping, Detroit bankruptcy, distributed ledger, diversified portfolio, Dogecoin, Donald Trump, double entry bookkeeping, Elon Musk, equity risk premium, Ethereum, ethereum blockchain, eurozone crisis, everywhere but in the productivity statistics, Extinction Rebellion, fiat currency, financial engineering, financial innovation, financial intermediation, financial repression, fixed income, Flash crash, forward guidance, full employment, gig economy, Gini coefficient, Glass-Steagall Act, global reserve currency, global supply chain, Goodhart's law, Great Leap Forward, green new deal, Greenspan put, high net worth, high-speed rail, housing crisis, Hyman Minsky, implied volatility, income inequality, income per capita, inflation targeting, initial coin offering, intangible asset, Internet of things, inventory management, invisible hand, Japanese asset price bubble, Jean Tirole, Jeff Bezos, joint-stock company, Joseph Schumpeter, junk bonds, Kenneth Rogoff, land bank, large denomination, Les Trente Glorieuses, liquidity trap, lockdown, Long Term Capital Management, low interest rates, Lyft, manufacturing employment, margin call, Mark Spitznagel, market bubble, market clearing, market fundamentalism, Martin Wolf, mega-rich, megaproject, meme stock, Michael Milken, Minsky moment, Modern Monetary Theory, Mohammed Bouazizi, Money creation, money market fund, moral hazard, mortgage debt, negative equity, new economy, Northern Rock, offshore financial centre, operational security, Panopticon Jeremy Bentham, Paul Samuelson, payday loans, peer-to-peer lending, pensions crisis, Peter Thiel, Philip Mirowski, plutocrats, Ponzi scheme, price mechanism, price stability, quantitative easing, railway mania, reality distortion field, regulatory arbitrage, rent-seeking, reserve currency, ride hailing / ride sharing, risk free rate, risk tolerance, risk/return, road to serfdom, Robert Gordon, Robinhood: mobile stock trading app, Satoshi Nakamoto, Satyajit Das, Savings and loan crisis, savings glut, Second Machine Age, secular stagnation, self-driving car, shareholder value, Silicon Valley, Silicon Valley startup, South Sea Bubble, Stanford marshmallow experiment, Steve Jobs, stock buybacks, subprime mortgage crisis, Suez canal 1869, tech billionaire, The Great Moderation, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thorstein Veblen, Tim Haywood, time value of money, too big to fail, total factor productivity, trickle-down economics, tulip mania, Tyler Cowen, Uber and Lyft, Uber for X, uber lyft, Walter Mischel, WeWork, When a measure becomes a target, yield curve

A multiplicity of causal forces, Olson suggested, can make a false theory seem true and a true theory appear false.37 Yet most accounts of the financial crisis draw on such a multiplicity of causal forces – by claiming that the crisis arose due to the proliferation of complex debt securities, unreliable credit ratings, flawed risk models, a pass-the-parcel approach to mortgage debt, poor regulation, animal spirits, excessive global savings, and so forth. Such accounts overlook the fact that financial practices and regulations differed from one country to another. American banks may have originated dodgy mortgage debt instruments in order to distribute them, but in Spain mortgage bonds (cédulas) remained on banks’ balance sheets. The Bank of Spain even demanded that banks increase their capital reserves during the boom.

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Yet Bernanke’s analysis ignores the fact that the riskiest subprime loans were priced off short-term rates, including the option of adjustable-rate mortgages with their negative amortization feature (in which interest was rolled up with the principal). It was only after the Fed’s easy money policy was launched that credit growth picked up, financial leverage soared, housing markets bubbled, underwriting standards declined and the repackaging of subprime mortgage debt into collateralized debt obligations took off. Low interest rates fed the demand for credit, while financial innovation increased its supply. The explosive growth of the market for complex mortgage securities was driven in large part by a desperate search for yield at a time when interest rates were at multi-decade lows.

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Teeth-grinding and jaw-clenching are caused by high levels of stress. Stress is a natural response to hard times. By 2010, around one in ten American workers were unemployed.67 Nearly half of American households were on benefits.68 The poverty rate was at a multi-decade high.69 Many US homes were ‘under water’, with outstanding mortgage debt higher than their market value.70 Housing foreclosures were at a record high.71 Middle-class households, whose largest asset was their home, lost on average 44 per cent of their wealth during the property bust. Since share ownership is largely the preserve of the rich, most Americans didn’t partake in the stock market’s recovery.72 Instead, their pension pots shrank in size and the income on their cash savings evaporated.73 By 2013, median household wealth was back at its 1969 level.74 The least fortunate suffered most.

Big Data and the Welfare State: How the Information Revolution Threatens Social Solidarity by Torben Iversen, Philipp Rehm

23andMe, Affordable Care Act / Obamacare, algorithmic bias, barriers to entry, Big Tech, business cycle, centre right, collective bargaining, COVID-19, crony capitalism, data science, DeepMind, deindustrialization, full employment, George Akerlof, income inequality, information asymmetry, invisible hand, knowledge economy, land reform, lockdown, loss aversion, low interest rates, low skilled workers, microbiome, moral hazard, mortgage debt, Network effects, new economy, obamacare, personalized medicine, Ponzi scheme, price discrimination, principal–agent problem, profit maximization, Robert Gordon, speech recognition, subprime mortgage crisis, tail risk, The Market for Lemons, The Rise and Fall of American Growth, union organizing, vertical integration, working-age population

https://doi.org/10.1017/9781009151405.005 Published online by Cambridge University Press Credit Markets 109 Yet the distribution of default risk is not merely a function of individual circumstances but also a function of national-level financial and social institutions. Income losses are cushioned by the social protection system, and financial regulations can absorb some of the default risk by subsidizing debt repayments or providing lender-of-last-resort guarantees. For example, when governments step in to purchase debt, notably by buying and securitizing mortgage debt, they assume risks that would otherwise be borne by lenders, thus enabling the latter to offer loans to more people and on more equal terms. This is a key effect of major quasi-public financial institutions such as Fannie Mae and Freddie Mac in the USA. The welfare state also matters. When people become unemployed, some of their lost income is replaced by unemployment benefits, and the higher the replacement rate, the more likely an unemployed person will be able to keep servicing debt.

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Published online by Cambridge University Press Credit Markets 109 Yet the distribution of default risk is not merely a function of individual circumstances but also a function of national-level financial and social institutions. Income losses are cushioned by the social protection system, and financial regulations can absorb some of the default risk by subsidizing debt repayments or providing lender-of-last-resort guarantees. For example, when governments step in to purchase debt, notably by buying and securitizing mortgage debt, they assume risks that would otherwise be borne by lenders, thus enabling the latter to offer loans to more people and on more equal terms. This is a key effect of major quasi-public financial institutions such as Fannie Mae and Freddie Mac in the USA. The welfare state also matters. When people become unemployed, some of their lost income is replaced by unemployment benefits, and the higher the replacement rate, the more likely an unemployed person will be able to keep servicing debt.

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Published online by Cambridge University Press Credit Markets 109 Yet the distribution of default risk is not merely a function of individual circumstances but also a function of national-level financial and social institutions. Income losses are cushioned by the social protection system, and financial regulations can absorb some of the default risk by subsidizing debt repayments or providing lender-of-last-resort guarantees. For example, when governments step in to purchase debt, notably by buying and securitizing mortgage debt, they assume risks that would otherwise be borne by lenders, thus enabling the latter to offer loans to more people and on more equal terms. This is a key effect of major quasi-public financial institutions such as Fannie Mae and Freddie Mac in the USA. The welfare state also matters. When people become unemployed, some of their lost income is replaced by unemployment benefits, and the higher the replacement rate, the more likely an unemployed person will be able to keep servicing debt.

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

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

Dating from 1853, when the UK first made interest paid by firms on loans or debts tax-deductible, today it is a feature of tax systems everywhere. In 2007, before the crash, the annual value of lost revenue due to tax breaks on debt payments was 2.4 per cent of GDP in the Eurozone (1.9 per cent for company debt; 0.5 for mortgage debt) and 3.5 per cent in the UK (all attributable to company debt, as mortgage interest payments are not tax-deductible). To put it into context, this was more than those countries spent on defence. In the USA, the lost revenue was a staggering 4.9 per cent of GDP, with company debt accounting for most of it.

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In 2014, evictions were still taking place at the rate of more than 100 a day. The number of unoccupied houses and apartments rose sharply, many repossessed by the banks after homeowners were unable to pay their mortgages. By 2015, 3.4 million homes lay vacant. In Spain, as in Ireland, people remain liable for mortgage debt, complete with penalties and interest, even after repossession. But while the British authorities continue to welcome plutocratic property speculators and create yet more incentives for under-occupation, in parts of Spain a new breed of politicians has taken action. The mayor of Barcelona, a housing activist elected in 2015, has fined banks for keeping properties empty and negotiated the temporary transfer of apartments for use as social housing.

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There was a run on the bank, the first UK bank run in 150 years, and in 2008 it was taken into state ownership. Billions of pounds of outstanding mortgages remained, many in arrears. The government held on to them until the market picked up. Then, in 2015, it sold a ‘book of loans’, the collective mortgage debt of 125,000 households, to an American private equity group, Cerberus, for £13 billion. This made it the biggest-ever sale of a loan portfolio, described effusively by the Chancellor of the Exchequer as the largest sale of financial assets by a European government.32 The deal immediately attracted controversy.

The Making of Global Capitalism by Leo Panitch, Sam Gindin

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

Today, pension funds, insurance companies, banks, and mutual funds—and not only American ones, but also many financial institutions and investors based abroad—hold mortgage-backed securities in their portfolios. Mortgage borrowers are the beneficiaries of what amounts to a global competition to lend to American home buyers.104 Indeed, by the mid 1990s household consumer and mortgage debt surpassed the total debt of nonfinancial corporations, and it also exceeded the debt of federal, state, and municipal governments combined. The global competition to lend to American workers combined with the global competition that free trade represented to integrate as well as weaken American labor.

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The roots of the subprime mortgage crisis thus lay in the way the anti-inflation commitment had since the 1970s ruled out the public expenditures that would have been required just to start addressing the crisis of inadequate housing in US cities. As we saw earlier, a key factor in the steady expansion of Americans’ consumer and mortgage debt since the 1970s had been reformers’ faith that private finance could be used by the state in the public interest—in other words, that financial institutions could be so regulated and reformed as to ensure their functioning in the interest of social groups that they had hitherto excluded. The rising demand for home-ownership at lower income levels had been encouraged by government support for meeting housing needs through financial markets backed by mortgage tax deductions.

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Of course, the desire to realize the American dream of home-ownership on the part of so many of those who had previously been excluded was one thing; actual access to residential finance markets was another. Access for such unprecedented numbers by the turn of the century was only possible because financial intermediaries were frantically creating domestic mortgage debt in order to package and resell it in the market for structured credit. Already well underway during the 1990s, this trend was given a great fillip not only by the Fed’s low interest rates but also by the Bush administration’s determination to expand the scope for “entrepreneurs” in the business of selling home mortgages, although it was mainly long-established private mortgage companies like Countrywide, and new ones that specialized in subprime loans like New Century Financial, that benefited from this.

The Rise and Fall of American Growth: The U.S. Standard of Living Since the Civil War (The Princeton Economic History of the Western World) by Robert J. Gordon

3D printing, Affordable Care Act / Obamacare, airline deregulation, airport security, Apple II, barriers to entry, big-box store, blue-collar work, business cycle, Capital in the Twenty-First Century by Thomas Piketty, carbon tax, Charles Lindbergh, classic study, clean water, collective bargaining, computer age, cotton gin, creative destruction, deindustrialization, Detroit bankruptcy, discovery of penicillin, Donner party, Downton Abbey, driverless car, Edward Glaeser, en.wikipedia.org, Erik Brynjolfsson, everywhere but in the productivity statistics, feminist movement, financial innovation, food desert, Ford Model T, full employment, general purpose technology, George Akerlof, germ theory of disease, glass ceiling, Glass-Steagall Act, Golden age of television, government statistician, Great Leap Forward, high net worth, housing crisis, Ida Tarbell, immigration reform, impulse control, income inequality, income per capita, indoor plumbing, industrial robot, inflight wifi, interchangeable parts, invention of agriculture, invention of air conditioning, invention of the sewing machine, invention of the telegraph, invention of the telephone, inventory management, James Watt: steam engine, Jeff Bezos, jitney, job automation, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, labor-force participation, Les Trente Glorieuses, Lewis Mumford, Loma Prieta earthquake, Louis Daguerre, Louis Pasteur, low skilled workers, manufacturing employment, Mark Zuckerberg, market fragmentation, Mason jar, mass immigration, mass incarceration, McMansion, Menlo Park, minimum wage unemployment, mortgage debt, mortgage tax deduction, new economy, Norbert Wiener, obamacare, occupational segregation, oil shale / tar sands, oil shock, payday loans, Peter Thiel, Phillips curve, pink-collar, pneumatic tube, Productivity paradox, Ralph Nader, Ralph Waldo Emerson, refrigerator car, rent control, restrictive zoning, revenue passenger mile, Robert Solow, Robert X Cringely, Ronald Coase, school choice, Second Machine Age, secular stagnation, Skype, Southern State Parkway, stem cell, Steve Jobs, Steve Wozniak, Steven Pinker, streetcar suburb, The Market for Lemons, The Rise and Fall of American Growth, Thomas Malthus, total factor productivity, transaction costs, transcontinental railway, traveling salesman, Triangle Shirtwaist Factory, undersea cable, Unsafe at Any Speed, Upton Sinclair, upwardly mobile, urban decay, urban planning, urban sprawl, vertical integration, warehouse robotics, washing machines reduced drudgery, Washington Consensus, Watson beat the top human players on Jeopardy!, We wanted flying cars, instead we got 140 characters, working poor, working-age population, Works Progress Administration, yellow journalism, yield management

“While only about $150 million worth had been sold before the war, total investment in real estate bonds is thought to have been approximately $10 billion by the early thirties.”39 One reason homeownership rates soared in the 1920s as part of the massive building boom of that decade was a widespread loosening of credit conditions that allowed families to take out second and third mortgages. The value of outstanding mortgages soared from about $12 billion in 1919 to $43 billion in 1930 (i.e., from 16% to 41% of nominal GDP). Figure 9–2 plots the ratio of mortgage debt to GDP against the non-structures consumer debt ratio already examined in figure 9–1. The differing left-hand and right-hand axes indicate that mortgage debt for structures during the 1920s was consistently seven times higher than for non-structures consumer debt. The longer view in figure 9–2 shows that the value of outstanding mortgages was roughly 20 percent of GDP from 1900 to 1922.40 Figure 9–2.

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The ratio of residential mortgage debt to residential wealth increased from 14.3 percent in 1916 to 27.2 percent in 1929. The sharp decrease evident in figure 9–3 between 1916 and 1920 is a result of wartime and postwar inflation, and the sharp increase between 1929 and 1932 is a result of deflation in the Great Contraction of 1929–32. The rise in prices after 1933, together with the near disappearance of residential construction during the 1930s and the years of World War II, helps account for the decline in the debt/wealth ratio between 1932 and 1948. Figure 9–3. Ratio of Nonfarm Residential Mortgage Debt to Nonfarm Residential Wealth, 1890–1952.

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Then a first mortgage would be obtained from a savings bank or mortgage dealer for 40 percent of the sales price ($1,200) at an interest rate of 5 to 6 percent, and a second mortgage for $300 was obtained from a real estate agent. Interest was paid semiannually over three to eight years, and the lump sum of principal was due at the end of the loan period. The details of mortgage contracts differed between and within cities, with some loans extending for as long as twenty years. The largest holders of mortgage debt were individuals, savings banks, and building and loan associations. The latter pioneered amortized loans, in which the monthly payment included both interest and repayment of principal, so that no lump-sum payment was due when the loan matured. Though the inclusion of principal repayment raised the size of the monthly payment, this was in many cases offset by extending the length of the repayment period.

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

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

The fact that fewer homes were built in 2009 than in any year since 1924 doesn’t help. Often prices rose because the middle classes compulsively wanted them to do so. They loved it. It made them feel rich, right up to the point where it ruined them. The Corset may have been impossible to sustain, but its demise marked the end of mortgage rationing. Mortgage debt didn’t rise at all in the Corset years of the 1970s. From 1979 to 1987 it grew at 10 per cent a year. The real problem was not so much the demise of the Corset. It was the failure to replace it with any policy that could possibly hold down house prices as the Niagara of mortgage money roared through the national economy.

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‘The securities involve a high degree of risk,’ said the front page of one junk-bond prospectus two days after the 1987 Crash, ‘and accordingly, investors may lose their entire investment.’ A quarter of a century on, the Collateralized Debt Obligations (CDOs), the complex instruments that bundled up good mortgage debt with unrepayable subprime debt, were deliberately packaged to be obscure so that the credit-rating agencies could not value them, and they could then be sold to less sophisticated investors. Michael Lewis interviewed the handful of people who had seen what was coming, and whose bets against the subprime bonds flew in the face of market momentum — just as Paul Woolley had done during the dot.com boom.

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Nor are our pensions practised at investing in the next generation of green energy infrastructure we so badly need to underpin our lives in the next generation. But something else needs to happen if the middle classes are to claw back any kind of retirement. Over a million of us in the UK are already working beyond retirement, some because we want to, but some because we still haven’t paid off our mortgages (the average mortgage debt for pensioners is now £45,300), and one in four pensioners is still borrowing money to make ends meet. The middle classes know all this. They are all too aware of the inadequacy of their pensions, without perhaps looking too closely at how inadequate. They are all too aware that the magical compound-interest machine, which protected middle-class generations in retirement, has run down.

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

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

As Steve Keen (2011) puts it: “Population dynamics – even immigration dynamics – have nothing to do with house prices. What determines house prices is not the number of babies being born, or immigrants – illegal or otherwise – arriving, but the number of people who have taken out a mortgage, and the dollar value of those mortgages … For changes in house prices, what matters is the acceleration of mortgage debt.” In response to the suggestion that mortgage lending increases house prices some may argue that an increase in the price of an asset acts as a signal (in the housing market) to developers to build more houses: increasing house prices lead to an increase in the number of houses being built, increasing their supply and so leading to a fall in their price.

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Globally the situation is similar – Figure 4.4 shows the percentage of countries in a banking crisis between 1800 and 2007 (so excluding the most recent financial crisis) fig. 4.4 - Percentage of Countries affected by Banking Crises Source: Reinhart and Rogoff, 2008 Box 4.F - The house price bubble In the years preceding the most recent financial crisis, bank lending created a bubble in the property market in several countries. For example, Keen (2012) calculates that 78% of the change in American house prices over the past 25 years and 60% of the change in Australian house prices over the past 30 years can be explained by the acceleration in mortgage debt. Meanwhile, in the UK house prices increased threefold between 1995 and 2007 (Nationwide, 2012). Contrary to popular belief, the increase in house prices was not fuelled by there being ‘too many people and not enough houses’. As Figure 4.5 shows, between 1997 and 2007, the number of housing units actually grew by 8%, while the population only grew by 5%.

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As an example, if an individual on an average salary of £25,200 took out a 25 year mortgage on an average house in 2007, the repayments would account for 47% of their salary over that period (assuming the unlikely scenario that average interest rates on mortgages remain at the historically low level of 4.5%). In contrast, the same person buying the same house in 1995 would only spend 24% of their salary servicing their mortgage debt. Today, most young people have effectively been priced out of ever being able to own their own home because of excessive money creation by the banking sector. fig. 4.5 - UK property prices, 1997 – 2010 (Indexed, 1997 = 100) Source: Nationwide house price survey 2012, Bank of England Statistical Database The flip side of this is people that owned or purchased property in the run up to the crisis now feel much wealthier.

Palace Coup: The Billionaire Brawl Over the Bankrupt Caesars Gaming Empire by Sujeet Indap, Max Frumes

Airbnb, Bear Stearns, Blythe Masters, book value, business cycle, Carl Icahn, coronavirus, corporate governance, corporate raider, Credit Default Swap, data science, deal flow, Donald Trump, family office, fear of failure, financial engineering, fixed income, Jeffrey Epstein, junk bonds, lockdown, low interest rates, Michael Milken, mortgage debt, NetJets, power law, ride hailing / ride sharing, Right to Buy, Robert Solow, Savings and loan crisis, shareholder value, super pumped, Travis Kalanick

Because of the hot real estate market in 2006, the debt secured by the six casinos was far greater than what could have been borrowed from a traditional loan or bond. Apollo and TPG had been obsessed with taking advantage of that arbitrage, and so were able to originally secure a $6.5 billion commitment of mortgage debt—about a third of the total Harrah’s new financing figure of $20 billion. The commitment for the real estate-backed loan was essentially unprecedented. Real estate financing was not new, but banks had been reluctant to provide a bridge loan strictly based on property valuations, which they were now doing for the first time in the Harrah’s buyout—a sign of the excesses that had developed in financial markets.

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But he also knew the company could not sit still if it wanted to grow out from underneath $24 billion of debt. While Harrah’s had been strategically buying back its own debt at a discount, it had been carefully examining the debt of other troubled rivals. In 2009, Harrah’s began acquiring the junior mortgage debt of the Planet Hollywood hotel and casino from the likes of Goldman Sachs for fifty cents on the dollar or less. Ultimately, Harrah’s spent $70 million to acquire $300 million of debt, which it then converted into a controlling equity position by early 2010. There was a remaining $550 million senior mortgage that would be left in place at a low interest rate, making it a low-risk bet.

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Banks, insurers, and hedge funds were writing and buying CDS to the tune of trillions of dollars by the mid-2000s—activities that were largely done outside of the watch of regulators. AIG, the massive global insurer, had sold CDS on more than $500 billion of assets, including $78 billion of securitized mortgage debt called CDOs. Those underlying mortgages soured in 2008, and AIG had no way to come up with the payout it owed. It ultimately led to a $182 billion bailout and seizure by the US Treasury. Warren Buffett labeled CDS as “weapons of financial mass destruction” and their opaque, complex use and scale worried market observers.

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

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

At the end of 2011, the value of the U.S. bond market was just under $37 trillion, with U.S. stocks at $21 trillion, for a total of $58 trillion.35 But only about two-thirds of that is owned domestically, so let’s use $39 trillion. (Contrary to popular perception, China owns only about 8 percent of the national debt.)36 Adding the $25 trillion of value stored in homes and subtracting mortgage debt of $13 trillion, that works out to $51 trillion, or about $450,000 per household.37 But that doesn’t include the value of all privately held companies, or loans to companies and individuals, which probably accounts for a portion of the difference between this estimate and the $625,000 above. That’s now, but let’s talk about the future.

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“World Capital Markets—Size of Global Stock and Bond Markets,” QVM Group LLC, April 2, 2012, http://qvmgroup.com/invest/2012/04/02/world-capital-markets-size-of-global-stock-and-bond-markets/. 36. http://finance.townhall.com/columnists/politicalcalculations/2013/01/21/who-really-owns-the-us-national-debt-n1493555/page/full, last modified January 21, 2013. 37. Cory Hopkins, “Combined Value of US Homes to Top $25 Trillion in 2013,” December 19, 2013, http://www.zillow.com/blog/2013-12-19/value-us-homes-to-top-25-trillion/; and “Mortgage Debt Outstanding,” Board of Governors of the Federal Reserve System, last modified December 11, 2014, http://www.federalreserve.gov/econresdata/releases/mortoutstand/current.htm. 38. “International Comparisons of GDP per Capita and per Hour, 1960–2011,” Bureau of Labor Statistics, table 1b, last modified November 7, 2012, http://www.bls.gov/ilc/intl_gdp_capita_gdp_hour.htm#table01. 39. https://www.energystar.gov, accessed December 31, 2014. 40.

The Cheapskate Next Door: The Surprising Secrets of Americans Living Happily Below Their Means by Jeff Yeager

An Inconvenient Truth, asset allocation, Boeing 747, carbon footprint, delayed gratification, do what you love, dumpster diving, index card, job satisfaction, late fees, mortgage debt, new economy, payday loans, Skype, upwardly mobile, Zipcar

Our addiction to borrowing, the mechanism through which we’re able to spend more than we earn, and our aversion to saving some of what we earn for the proverbial rainy day, are both fairly recent trends in America. Total consumer debt grew nearly eight times in size from 1980 ($355 billion) to 2008 ($2.6 trillion). During that same period, the share of disposable income each household spent servicing its consumer debt and mortgage debt increased by 35 percent. Once upon a time in America, the way we accumulated savings was by, well, spending less than we made and banking the difference. In 1982, the average household put 11 percent of its disposable income into savings; twenty-five years later that figure had dropped to less than 1 percent.

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More than 80 percent of those cheapskates polled who own homes reported that they have already paid off or plan to pay off their home mortgages sooner than required under the terms of the loan. That’s a shocker, given that roughly half of all Americans will never—during their lifetimes—be entirely free of a home mortgage debt and/or debt secured against their home. “Every minute of every day that I owe someone else money is sheer agony for me,” Alice Wilson told me. “It’s like I’m in prison, and the only thing I can think about is getting out as quickly as possible.” Alice definitely exhibits no warning signs of debtor dementia. 15.

End This Depression Now! by Paul Krugman

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

By that I mean that we found ourselves in a world in which lack of sufficient demand had become the key economic problem, and in which narrow technocratic solutions, like cuts in the Federal Reserve’s interest rate target, were not adequate to that situation. To deal effectively with the crisis, we needed more activist government policies, in the form both of temporary spending to support employment and of efforts to reduce the overhang of mortgage debt. One might think that these solutions could still be considered technocratic, and separated from the broader question of income distribution. Keynes himself described his theory as “moderately conservative in its implications,” consistent with an economy run on the principles of private enterprise.

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Deflation, said Fisher, can depress the economy by raising the real value of debt. Inflation, conversely, can help by reducing that real value. Right now, markets seem to expect the U.S. price level to be around 8 percent higher in 2017 than it is today. If we could manage 4 or 5 percent inflation over that stretch, so that prices were 25 percent higher, the real value of mortgage debt would be substantially lower than it looks on current prospect—and the economy would therefore be substantially farther along the road to sustained recovery. There’s one more argument for higher inflation, which isn’t particularly important for the United States but is very important for Europe: wages are subject to “downward nominal rigidity,” which is econospeak for the fact, overwhelmingly borne out by recent experience, that workers are very unwilling to accept explicit pay cuts.

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

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

Low interest rates, aggressive and imaginative marketing of home mortgages, auto loans, and credit cards, diminishing regulation of the banking industry, and perhaps the rise of a speculative culture —an increased appetite for risk, illustrated by a decline in the traditional equity premium (the margin by which the average return on an investment in stocks exceeds that of an investment in bonds, which are less risky than stocks)—spurred speculative lending, especially on residential real estate, which is bought mainly with debt. As in 1929, the eventual bursting of the bubble endangered the solvency of banks and other financial institutions. Residential-mortgage debt is huge ($11 trillion by the end of 2006), and many defaults were expected as a result of the bubble's collapse. The financial system had too much risk in its capital structure to take these defaults in stride. The resulting credit crisis —a drastic reduction in borrowing and lending, indeed a virtual cessation of credit transactions, for long enough to disrupt the credit economy seriously—precipitated a general economic downturn.

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In a March 2006 article in The Economists' Voice entitled "The Menace of an Unchecked Housing Bubble," another economist, Dean Baker, had written: "When the downturn in house prices occurs, many homeowners will have mortgages that exceed the value of their homes, a situation that is virtually certain to send default rates soaring. This will put lenders that hold large amounts of mortgage debt at risk, and possibly jeopardize the solvency of Fannie Mae and Freddie Mac, since they guarantee much of this debt. If these mortgage giants faced collapse, a government bailout (similar to the S&L bailout), involving hundreds of billions of dollars, would be virtually inevitable." Baker, like Roubini, had hit the bull's eye.

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

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

The debate centered on mortgage relief, and although both administrations decided to help the people through the banks, they ended up helping the banks instead of the people. They were not always clear about their intentions, however. In 2008, Treasury secretary Henry Paulson sold the TARP to Congress and the public as an undertaking that would help relieve average Americans’ mortgage debts through modifications and other direct relief. Paulson promised Congress that he would find ways to stem the tide of impending mortgage foreclosures. But after examining direct-relief plans, including a mortgage modification protocol developed by FDIC chairman Sheila Bair, Paulson concluded that these programs would “require substantial government subsidies” and “direct spending”43 that he ultimately felt were unjustified.44 This led one congressman to call the TARP “the second largest bait and switch scheme that history has ever seen, second only to the reasons given to us to vote for the invasion of Iraq.”45 Barney Frank also angrily cut off Henry Paulson during congressional testimony, saying that “the bill couldn’t have been clearer” in being aimed at reducing foreclosures.46 When President Obama took office, his administration also promised, but failed, to achieve meaningful mortgage relief.

…

As explained by one scholar, “The problem of loan-sharking was brushed aside by making [high interest rates], once typical only of organized crime, perfectly legal—and therefore, enforceable no longer by just hired goons and the sort of people who place mutilated animals on their victims’ doorsteps, but by judges, lawyers, bailiffs, and police.”34 Today, American society not only accepts credit as a way of life, we embrace it. The average American has $15,000 in credit card debt, $33,000 in student loan debt, and $156,000 in mortgage debt.35 Not only do the majority of the American public borrow their way up the income ladder, but federal mortgage and student loan markets and loose credit policies led to the creation of the American middle class. We, the people, have decided (through laws and policies enacted by our elected representatives) that as a society, we want access to affordable credit for both big wealth-building items like homes, education, and businesses and day-to-day smooth-out-the-bumps sorts of things via credit cards and car loans that would have even higher interest rates if not for government policies.

…

The CRA myth allows the proponents of continued banking deregulation to flip the narrative. Instead of admitting that the banks’ high levels of debt were a central problem, they can claim that the irresponsible poor and middle-class—enabled by federal government largesse—brought down the banks with their mortgage debt. Subprime borrowers were certainly not always hapless victims, but they were also not the villains in this story.88 The debate over the CRA suggests two broader questions about providing banking for the poor: (1) whether mainstream commercial banks should be tasked with providing these services, and (2) whether they can do it in a way that benefits the poor.

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

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

I remember in August 2006, when I snuck out of the Fed’s annual economic summit in Jackson Hole, Wyoming, to go fly-fishing, my guide was a mortgage broker; his horror stories of sketchy loans to homeowners with sketchy credit were a stark real-world supplement to the academic debates at the central banking summit. Borrowing frenzies are prerequisites for financial crises, and too many Americans were using credit to finance lifestyles their salaries couldn’t support. From 2001 to 2007, the average mortgage debt per household increased 63 percent, while wages remained flat in real terms. The financial system provided this credit with enthusiasm, even to individuals with low or undisclosed incomes, then packaged the loans into securities that were also bought on credit. The financial sector now held $36 trillion worth of debt, a twelvefold increase over three decades.

…

For the time being, though, IndyMac’s indelible images of fear were just more evidence that things were going from bad to worse. THE FINANCIAL system could easily absorb the $30 billion collapse of IndyMac. There was no way it could absorb the collapse of Fannie Mae and Freddie Mac. The two government-sponsored enterprises held or guaranteed more than $5 trillion in mortgage debt. They were funding about three of every four new U.S. mortgages, propping up what was left of the housing market. But they were heading for the abyss. Fannie’s stock price plunged to $10.25 the day IndyMac failed, down 90 percent from its peak. Just about everyone except their captured regulator agreed they were woefully undercapitalized.

…

It was a brutally complicated problem, affecting the profligate along with the merely unfortunate, and we felt intense pressure to do something big. There had been three million foreclosure filings in 2008, and, so far, federal efforts to ease the crisis had been limited in ambition and impact. One congressionally designed program known as Hope for Homeowners, an effort to reduce the mortgage debt of families in distress, had attracted only 312 applicants nationwide. And the futures markets suggested real estate prices still had a long way to sink, which meant a lot more suffering ahead—not just for speculators who had assumed the boom would never end and conspicuous consumers who had bought bigger houses than they could afford, but for hardworking homeowners who were underwater through absolutely no fault of their own.

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

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

They were buying their houses in the hope that as the house prices rose their debts would become payable, while interest rates would remain low. Household debt, which had been steady at around 45 percent of household income between 1965 and 1985, had risen to a peak of just under 100 percent by 2007. Much of this was mortgage debt. Lenders such as Countrywide would loan out the money for mortgages and borrow in turn from short-term money markets against the collateral of these mortgages. At the other end of the globe, China had been growing at double-digit rates. Its voracious appetite for raw materials put pressure on the commodity markets, where prices began to rise.

…

But after a political crisis which led to the breakup of the Labour Party and the exit of the UK from the Gold Standard in 1931, things began to bottom out. The Depression in the UK lasted for five years, from 1929 to 1934. But in the US the situation was more serious and unemployment reached the unprecedented level of 25 percent. Unable to repay their mortgage debts, many farmers lost their farms and had to migrate in large numbers from the Midwest to the West Coast or the big cities. The tumultuous and harrowing impact that the Great Depression had on the lives of the farming community was immortalized in John Steinbeck’s moving novel The Grapes of Wrath.

Home: Why Public Housing Is the Answer by Eoin Ó Broin

Airbnb, carbon footprint, Celtic Tiger, financial deregulation, Future Shock, global macro, housing crisis, Housing First, Kickstarter, land bank, land reform, low interest rates, mortgage debt, negative equity, open economy, passive investing, quantitative easing, Right to Buy, Ronald Reagan, the built environment

The report also highlighted the growing affordability issues for both private renters and home buyers suggesting that 20 percent of renters were paying more than 35 percent (the Government’s definition of affordability under the Planning and Development Act 2000) of their post-tax income on accommodation. While the picture for recent home buyers was less clear cut, the report did emphasise the risks inherent in the growing levels of mortgage debt, particularly if interest rates were to rise or wages fall. Interestingly the report highlights three main concerns regarding the housing system, which while not shared by all members were a significant portent of things to come. In a section on the stability of the system the following observation was made: One group of observers consider that the Irish housing market displays a strong instability and irrationality, amounting to a ‘bubble’ that is likely to burst when the irrational expectations and exuberance that drives the market turn from positive to negative.

…

In parallel to these measures the report urged Government to bring the Rent Supplement and Housing Assistance Payments in line with market rents.76 The Committee called for the introduction of a scheme for Councils and Approved Housing Bodies to purchase rental properties with the tenants remaining in situ (a Rent Switch programme); they voiced for an amendment to the Residential Tenancy Act to remove sale of property as grounds for issuing a Notice to Quit and to give tenants in such situations greater legal safeguards; they also called for a general improvement in the length of rental tenancies beyond the current four years.77 In June 2016 according to the Central Bank the total number of residential mortgages in arrears of more than ninety days was 52,571 while a further 14,828 buy-to-let mortgages were also in long-term distress.78 Their quarterly Mortgage Arrears and Repossession Statistics bulletin published that month recorded 1,783 residential dwellings in the bank’s possession at the end of the quarter with a total of 397 properties transferring to the lenders in those three months, 101 via court order to repossess with the remaining 296 as a result of voluntary surrender or abandonment.79 The total number of buy-to-let properties that had been transferred into the management of receivers at the end of the quarter was 5,741 with 305 properties being transferred to the banks in that quarter, 171 via court ordered repossession and 134 via voluntary surrender or abandonment.80 The Housing and Homeless Committee urged the Government to introduce a legal moratorium on home repossessions and as a matter of urgency to bring forward a new plan to tackle the growing mortgage distress problem. The report called Government to make better use of a number of schemes to keep people in the family home including Mortgage to Rent, split mortgages, debt write downs and downsizing.81 There had been a considerable volume of discussion at the Committee on the issue of financing social and affordable housing delivery, particularly in the context of recent funding constraints caused by the policies of austerity and the changes to European Union fiscal rules following the adoption of the Treaty for Stability, Coordination and Governance (known by its critics as the Austerity Treaty) in 2013.

The Money Machine: How the City Works by Philip Coggan

activist fund / activist shareholder / activist investor, algorithmic trading, asset-backed security, Bear Stearns, Bernie Madoff, Big bang: deregulation of the City of London, Black Monday: stock market crash in 1987, bond market vigilante , bonus culture, Bretton Woods, call centre, capital controls, carried interest, central bank independence, collateralized debt obligation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, disintermediation, diversification, diversified portfolio, Edward Lloyd's coffeehouse, endowment effect, financial deregulation, financial independence, floating exchange rates, foreign exchange controls, Glass-Steagall Act, guns versus butter model, Hyman Minsky, index fund, intangible asset, interest rate swap, inverted yield curve, Isaac Newton, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", joint-stock company, junk bonds, labour market flexibility, large denomination, London Interbank Offered Rate, Long Term Capital Management, low interest rates, merger arbitrage, Michael Milken, money market fund, moral hazard, mortgage debt, negative equity, Nick Leeson, Northern Rock, pattern recognition, proprietary trading, purchasing power parity, quantitative easing, reserve currency, Right to Buy, Ronald Reagan, shareholder value, South Sea Bubble, sovereign wealth fund, technology bubble, time value of money, too big to fail, tulip mania, Washington Consensus, yield curve, zero-coupon bond

But an additional safeguard could be introduced; ensure that bonuses only be given for results achieved over the long, not the short-term. SHADOW BANKS The credit crunch has also shown that it is not just the banks that create problems. There is also a vast shadow banking system, consisting of hedge funds, private equity and structured investment vehicles or SIVs. These both invested in the mortgage debts that originated the problems and borrowed money from the banks to do so. When they collapsed, the banks were brought down with them; their disappearance also left a gap in the funding of the private sector. Should they be regulated? The answer is clearly yes, if only because of the mess that they have left.

…

It seems likely that the authorities will aim to increase the amount of information they hold about such funds, so they can see whether they pose a risk to the system. In his report, Lord Turner discusses the need for ‘macroprudential regulation’, a sort of longstop to the system that worries about the risks being taken across the industry. Such a regulator would warn when mortgage debt was growing too quickly or when banks were taking too much of a risk in trading. There is also talk of a global version, based around a body called the Financial Stability Forum. The problem lies in giving such a body teeth. At the national level, this could be done, as Lord Turner suggests, by using a committee drawn from the FSA and Bank of England.

Misbehaving: The Making of Behavioral Economics by Richard H. Thaler

3Com Palm IPO, Alan Greenspan, Albert Einstein, Alvin Roth, Amazon Mechanical Turk, Andrei Shleifer, Apple's 1984 Super Bowl advert, Atul Gawande, behavioural economics, Berlin Wall, Bernie Madoff, Black-Scholes formula, book value, business cycle, capital asset pricing model, Cass Sunstein, Checklist Manifesto, choice architecture, clean water, cognitive dissonance, conceptual framework, constrained optimization, Daniel Kahneman / Amos Tversky, delayed gratification, diversification, diversified portfolio, Edward Glaeser, endowment effect, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, George Akerlof, hindsight bias, Home mortgage interest deduction, impulse control, index fund, information asymmetry, invisible hand, Jean Tirole, John Nash: game theory, John von Neumann, Kenneth Arrow, Kickstarter, late fees, law of one price, libertarian paternalism, Long Term Capital Management, loss aversion, low interest rates, market clearing, Mason jar, mental accounting, meta-analysis, money market fund, More Guns, Less Crime, mortgage debt, Myron Scholes, Nash equilibrium, Nate Silver, New Journalism, nudge unit, PalmPilot, Paul Samuelson, payday loans, Ponzi scheme, Post-Keynesian economics, presumed consent, pre–internet, principal–agent problem, prisoner's dilemma, profit maximization, random walk, randomized controlled trial, Richard Thaler, risk free rate, Robert Shiller, Robert Solow, Ronald Coase, Silicon Valley, South Sea Bubble, Stanford marshmallow experiment, statistical model, Steve Jobs, sunk-cost fallacy, Supply of New York City Cabdrivers, systematic bias, technology bubble, The Chicago School, The Myth of the Rational Market, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, transaction costs, ultimatum game, Vilfredo Pareto, Walter Mischel, zero-sum game

When the housing bubble arrived and drove up prices, homeowners were told they could lower their mortgage payment and take out a bit of extra cash too, to refinish the basement and buy a big-screen television. At this point, home equity ceased to be a “safe” mental account. This fact is illustrated by a change in the borrowing behavior of households with a head that is aged seventy-five or older. In 1989 only 5.8% of such families had any mortgage debt. By 2010, the fraction with debt rose to 21.2%. For those with mortgage debt, the median amount owed also rose over this period, from $35,000 to $82,000 (in 2010 dollars). During the housing boom in the early 2000s, homeowners spent the gains they had accrued on paper in home equity as readily as they would a lottery windfall. As documented in House of Debt, a book by economists Atif Mian and Amir Sufi, by 2000 increases in home equity had become a strong driver of consumption, especially of consumer durables.

…

Home equity offers an interesting intermediate case. For decades people treated the money in their homes much like retirement savings; it was sacrosanct. In fact, in my parents’ generation, families strived to pay off their mortgages as quickly as possible, and as late as the early 1980s, people over sixty had little or no mortgage debt. In time this attitude began to shift in the United States, partly as an unintended side effect of a Reagan-era tax reform. Before this change, all interest paid, including the interest on automobile loans and credit cards, was tax deductible; after 1986 only home mortgage interest qualified for a deduction.

The Dying Citizen: How Progressive Elites, Tribalism, and Globalization Are Destroying the Idea of America by Victor Davis Hanson

"World Economic Forum" Davos, 2021 United States Capitol attack, 23andMe, affirmative action, Affordable Care Act / Obamacare, airport security, Bernie Sanders, Big Tech, Black Lives Matter, Boeing 737 MAX, borderless world, bread and circuses, British Empire, business climate, business cycle, carbon footprint, centre right, clean water, coronavirus, COVID-19, creative destruction, currency manipulation / currency intervention, defund the police, deindustrialization, deplatforming, disinformation, Donald Trump, Dr. Strangelove, drone strike, El Camino Real, fake news, Ferguson, Missouri, fixed income, Francis Fukuyama: the end of history, future of work, George Floyd, Gini coefficient, global pandemic, Herbert Marcuse, high-speed rail, Honoré de Balzac, illegal immigration, immigration reform, income inequality, Jeff Bezos, Joseph Schumpeter, laissez-faire capitalism, lockdown, Mark Zuckerberg, mass immigration, mass incarceration, Menlo Park, microaggression, military-industrial complex, mortgage debt, Nate Silver, new economy, New Urbanism, obamacare, old-boy network, Paris climate accords, Parler "social media", peak oil, Potemkin village, Ralph Waldo Emerson, Robert Mercer, Ronald Reagan, school choice, Silicon Valley, Silicon Valley billionaire, Skype, social distancing, Social Justice Warrior, tech worker, Thomas L Friedman, transcontinental railway, upwardly mobile, vertical integration, WikiLeaks, working poor, Yom Kippur War, zero-sum game

The middle class over the half century following 1970 was losing the ability to buy homes—even as, or in part because, houses became far larger and more livable. Far more rarely could the middle classes meet the family budget sacrifices needed to service growing mortgage debt. In the last fifty years of the twentieth century, for example, the ratio of collective mortgage debt to other family loan obligations rose from 20 to 73 percent. The ratio of household mortgage debt to household assets rose from 15 to 41 percent. Middle-class Americans still wanted to own their homes. But increasingly they lacked the wherewithal to buy them and turned to ever-larger mortgages—if they could get them.

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

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

Rather than dampen speculation, the rising rates stimulated it all the more, as mortgage brokers like Mozilo and Wall Street securitizers financed riskier mortgages to make up for lower profit margins. Tens of billions of dollars of fresh capital flowed to the United States from China. Despite the rapid increase in rates by the Fed—the target federal funds rate rising from 1 percent to more than 5 percent—more subprime mortgages were written than ever before. In all, $7 trillion of mortgage debt was created between 2000 and 2007, more than the total debt of the federal government accumulated over fifty years. Some economists blamed Greenspan for cutting rates to such low levels, and keeping them there for so long. But the low rates could have been a constructive way to revitalize the economy had they been accompanied by adequate regulatory oversight.

…

On the contrary, in one of the most remarkable episodes of government irresponsibility, Greenspan and other Washington regulators looked the other way. Regulatory failure was the open valve through which bad debt flowed. This regulatory failure, like Wall Street excess, was the product of the ideology that first took root in the 1970s. Ultimately, hundreds of billions of dollars of bad mortgage debt were bought by the world’s largest investment institutions. All the while, the American people seemed to trust that even when they were taking mortgages they couldn’t imagine qualifying for a decade earlier, the financial markets were working fairly and that federal overseers would see to it that Wall Street greed did no damage.

…

Overall, capital investment rose in the 1990s as a proportion of GDP, but many hundreds of billions of dollars of it turned out to be wasted. The collapse of housing eight years later followed the same pattern, but the bubble in terms of actual dollars was far bigger and the collapse of greater consequence. Six to seven trillion dollars of new mortgages had been written that decade; mortgage debt was now much greater in total than federal debt. Wall Street firms learned how to raise capital for new mortgages around the world by creating attractive securities that in fact disguised the real risk of the mortgages. The major banking firms not only “securitized” these mortgages but had consumer loan subsidiaries that wrote subprime and other risky mortgages aggressively.

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

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

But to explain how this could trigger a financial crisis, with bank failures spreading panic and a credit crunch across the world, there is one crucial thing to add: Real estate is not only the largest single form of wealth, it is also the most important form of collateral for borrowing.4 It is mortgage debt that both amplifies the broader economic cycle and links the house price cycle to the financial crisis.5 Between the 1990s and the outbreak of the crisis in 2007, American housing finance was turned into a dynamic and destabilizing force by a fourfold transformation—the securitization of mortgages, their incorporation into expansive and high-risk strategies of banking growth, the mobilization of new funding sources and internationalization.

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Fannie Mae did not issue mortgages. It bought them mainly from commercial banks across the United States that specialized in issuing FHA-insured mortgages. By acting as a backstop, Fannie Mae lowered the cost of lending and set a national standard for both lenders and “prime” borrowers. It helped to unify America through mortgage debt. Fannie Mae was able to fund its purchases of these standardized mortgages cheaply because its credit rating was that of a government agency that could not fail. So-called agency debt was equivalent to that of the Treasury. By the same token, the obligations of Fannie Mae featured on the federal government’s balance sheet.

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The Rise and Fall of Subprime Lending in the United States, 1996-2008 (in $ billions) Note: Percent securitized is defined as subprime securities issued divided by originations in a given year. In 2007 securities issued exceeded originations. Source: Inside Mortgage Finance. The message that this communicated down the food chain was simple: We want more mortgage debt to process, and the worse the quality, the better. By the magic of independent probabilities, the worse the quality of the debt that entered into the tranching and pooling process, the more dramatic the effect. Substantial portions of undocumented, low-rated, high-yield debt emerged as AAA. In any boom, irresponsible, near criminal or outright fraudulent behavior is to be expected.

The Global Minotaur by Yanis Varoufakis, Paul Mason

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

A little later, the RBS attempts to stave off bankruptcy by trying to raise £12 billion from its shareholders, while at the same time admitting to having lost almost £6 billion in CDOs and the like. Around this time house prices start falling in Britain, Ireland and Spain, precipitating more defaults (as homeowners in trouble can no longer even pay back their mortgages by selling their houses at a price higher than their mortgage debt). May – Swiss bank UBS is back in the news, with the announcement that it has lost $37 billion on duff mortgage-backed CDOs and that it intends to raise almost $16 billion from its shareholders. June – Barclays Bank follows the RBS and UBS in trying to raise £4.5 billion on the stock exchange.

…

So, whereas prior to 2008 Wall Street created its synthetic financial products on its own (perhaps with the government turning a blind eye), following the 2008 meltdown it has done so with massive government (American and European) subsidies. In summary, as early as in February of 2009, the Obama administration filled Wall Street’s sails by engineering a new marketplace for the old derivatives (which were replete with poor people’s mortgage debts). The medium of exchange in this new marketplace was a mixture of the old (refloated) derivatives and new ones (based not on poor people’s mortgages but on the taxes of those who could not avoid paying them – often the very same poor people). Thus, many of the banks’ toxic assets were moved off their accounts, while the production of new private toxic money took another turn.

The Vanishing Middle Class: Prejudice and Power in a Dual Economy by Peter Temin

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, affirmative action, Affordable Care Act / Obamacare, air traffic controllers' union, American Legislative Exchange Council, American Society of Civil Engineers: Report Card, anti-communist, Bernie Sanders, Branko Milanovic, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carried interest, clean water, corporate raider, Corrections Corporation of America, crack epidemic, deindustrialization, desegregation, Donald Trump, driverless car, Edward Glaeser, Ferguson, Missouri, financial innovation, financial intermediation, floating exchange rates, full employment, income inequality, independent contractor, intangible asset, invisible hand, longitudinal study, low skilled workers, low-wage service sector, mandatory minimum, manufacturing employment, Mark Zuckerberg, mass immigration, mass incarceration, means of production, mortgage debt, Network effects, New Urbanism, Nixon shock, Nixon triggered the end of the Bretton Woods system, obamacare, offshore financial centre, oil shock, plutocrats, Powell Memorandum, price stability, race to the bottom, road to serfdom, Robert Solow, Ronald Reagan, Savings and loan crisis, secular stagnation, Silicon Valley, Simon Kuznets, the scientific method, War on Poverty, Washington Consensus, white flight, working poor

Finance is seen in the FTE sector as a way to make large purchases or deal with emergency needs. But it is seen in the low-wage sector as a burden or a form of oppression that may lead to prison. Many workers in the low-wage sector say they cannot find funds for an emergency for which they need a few hundred dollars without selling something they would otherwise want to keep. Consider mortgages, debts that home owners secure using their houses and condos as security. The median worker did not see figure 2 as it developed in the 1980s or the developing split of the American economy that was already under way. Instead, working families had increasing trouble trying to continue the spending habits they had developed before.

…

Mortgage default normally is considered a problem for each individual, but the accumulation of household debt, which doubled relative to income after 1980, was encouraged by government subsidies through tax deductions, guarantees from Fannie Mae and Freddy Mac for home mortgages, and the stagnation of working incomes. The accumulation of mortgage debt has impeded personal expenditures, depressing consumer expenditures after the crash. The result is that employment has remained low since the 2008 financial crisis due to low consumer spending.2 Mortgage relief would promote prosperity better than standard fiscal policies because it would help people most likely to increase spending.

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

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

It also owns eight riverboats that do scenic tours of the Three Gorges, an amusement park with performing dolphins and a bungee tower, and a traditional Chinese-medicine company that grows a type of lily used as a cough suppressant. However, the one element that this vast group of disparate companies has in common is debt. State firms might account for only a quarter of the economy, but they’ve borrowed almost 60% of all the corporate debt. China has little mortgage debt relative to the United States, and official government debt is very low, unlike in Greece; but China’s companies—and in particular its state-owned companies—have borrowed incredible amounts. According to the consulting firm McKinsey, between 2007 and mid-2014, China’s companies—both state and private companies combined—went from owing $3.4 trillion to $12.5 trillion, a faster buildup than in any other country in modern times.

…

Four years later, the corporate descendant of Springs’s company closed the last of its Lancaster plants, packed up its machines, and moved them to Brazil. With the end of large-scale textile manufacturing in Lancaster, unemployment in the county soared, peaking a little below 19% in mid-2009. That year, Forbes magazine, based on a survey of poverty, education, income, and mortgage-debt levels, labeled Lancaster the most vulnerable county in the United States. By 2013, South Carolina had lost more than thirty thousand textiles jobs over the preceding decade, a decline of 63%. That was the year I met Zhu Shanqing. Zhu had started his career working for a state-owned chemical company, then went out on his own to trade polyester.

Be Your Own Financial Adviser: The Comprehensive Guide to Wealth and Financial Planning by Jonquil Lowe

AltaVista, asset allocation, banking crisis, BRICs, buy and hold, correlation coefficient, cross-subsidies, diversification, diversified portfolio, estate planning, fixed income, high net worth, money market fund, mortgage debt, mortgage tax deduction, negative equity, offshore financial centre, Own Your Own Home, passive investing, place-making, Right to Buy, risk/return, short selling, zero-coupon bond

You can see that the Bank of England rate has ranged from nearly 15 per cent a year down to 0.5 per cent, so over the full term of a mortgage you could see considerable variation in your repayments. Changes that happen many years ahead are less important than changes within the earlier years of your mortgage. Your mortgage debt is a fixed or reducing sum, whereas your earnings will tend to rise at least in line with inflation as the years go by. Thus, your monthly payments will tend to take a smaller proportion of your income in the years ahead, giving you an expanding capacity to cope with any rise in the mortgage rate.

…

In its final report, the Commission made the following points: Housing wealth…has major implications for appropriate pension system design. But it is not in itself a sufficient solution to problems of pension adequacy… A 55–59 year old with an income of between £17,500–£24,999 owned housing assets (net of mortgage debt) with a median value of around £150,000 in mid 2002. And while today only a very small proportion of these are used to fund retirement via equity release or trading down, with home ownership now reaching over 60% among those aged over 80, there will be an increasing flow of inheritance of housing assets, often by people who already own one house.

…

Equity release and inheritance planning Some advisers suggest that equity release schemes (see Chapter 8) can be a useful way to save inheritance tax. It is certainly true that, if you take out a lifetime mortgage against your home and spend the money raised, the value of your estate will be reduced. Your home is still part of your estate but the mortgage debt is deducted. Similarly, a home reversion scheme cuts the size of your estate because your home passes out and into the ownership of the reversion company. But you should bear in mind that equity release schemes do not give you the full value of the equity you give up. This difference is likely to more than match any amount you save in inheritance tax.

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

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

There are several causes of this development which only partially relate to weakly increasing (or stagnant) real incomes among workers and others. Indeed, the available evidence reveals a nuanced and complex process of household financialization. Figures 38 to 41 disaggregate household indebtedness by splitting it into mortgage debt, unsecured consumer debt and other liabilities for each of the four countries. By far the largest component of indebtedness is mortgage debt, which has also grown strongly (except for Germany); unsecured consumer debt has also generally increased, but it is far from a dominant, or even a large, part of household liabilities.20 The bulk of household indebtedness in the period of financialization in mature countries has been for mortgage purposes.

…

By 2006 the US housing bubble was over and the conditions were ready for the enormous crisis that followed. It is remarkable – and a true reflection of the content of financialization – that the historic crisis that commenced in 2007 was triggered by the poorest layers of the US working class defaulting on mortgage debt. Figure 4, showing bank assets relative to GDP, indicates that in the course of the bubble, banks and the financial system in general grew rapidly in the UK and significantly in Japan; there was much less rapid growth in Germany. The figures for the US are partially misleading in this respect because there has been a large increase of ‘shadow banking’ including institutions engaging in mortgage and other activities, which does not appear in the commercial bank data, as was noted in Chapter 7.

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

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

The whole financial sector drowned the property market in credit, so by summer 2007 it had cumulatively issued £257 billion of residential mortgage-backed securities in the new markets for securitised assets to top up normal sources of funding. In other words, more than a fifth of the total £1.2 trillion stock of British mortgage debt was being funded through an avenue – asset-backed securities – that had not even existed a decade earlier. The competition between the lenders drove down credit-worthiness terms, as it always does. The research firm Data Monitor suggests that 7 per cent of mortgages just before the crash went to people with a poor credit history, and another 5–6 per cent required no proof of income.24 Mortgages to the buy-tolet market expanded ten times in a decade as lenders believed they were on to fail-safe lending.

…

The McKinsey researchers identify five countries that experienced a huge rise in their debt in the decade up to 2007 (and where, if history is any guide, the financial crisis will lead to a period of deleveraging) – the United States, the UK, Spain, South Korea and Canada. These are not economic minnows: together, they account for more than a third of the world’s GDP. The UK is particularly vulnerable. It had the biggest jump in residential mortgage debt, to reach 101 per cent of GDP in 2007 according to the institute’s calculations, the highest in the world. Moreover, UK mortgages are particularly sensitive to changes in interest rates. The financial sector grew phenomenally too, with borrowing reaching 194 per cent of GDP, although part of that represented the City’s position as a global hub.

…

The institute then looks at the level of leverage, its growth, debt service ratios and the vulnerability of borrowers to shocks either to their income or to their capacity to refinance their borrowing. The results are collated into a ‘heat map’ of where in the world deleverage pressures will be most acute. In Britain it is plain that, by these criteria, households will try to reduce their £1.2 trillion of mortgage debt, while real estate companies will try to do the same with their £350 billion commercial property debt. Banks will also attempt to deleverage. Moreover, the British will be deleveraging at the same time as the other countries in the study. The chances of growing out of trouble through export will thus be small.

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

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

The gains in asset price and debt were extraordinary, at least relative to underlying economic performance. In the US, the Case-Shiller house price index more than doubled between 2000 and 2006. American households took on vast amounts of additional debt. As a share of (rising) household income, mortgage debt rose more than 50 per cent over the same period. The UK's experience was more or less identical. Yet, in policy-making circles, these extraordinary changes were casually brushed to one side. In 2004, Charlie Bean, at the time the Bank of England's chief economist, argued that there was nothing amiss: he regarded house price gains and the associated increase in household indebtedness as merely ‘a transfer of lifetime wealth from younger generations to their parents’.7 In his view, first-time buyers and those trading up were both willing and able to take out larger mortgages, thanks to lower interest rates and an increase in available mortgage finance.

…

Pre-crisis, confidence in financial alchemy manifested itself in all sorts of ways: strange innovations within capital markets; the huge expansion of carry trades as investors could borrow cheaply in, for example, Japanese yen and invest in sterling, the New Zealand dollar or the Turkish lira, all of which offered much higher interest rates; rapacious bankers who were happy to bet the house (or, more likely, their bank) on ever more outlandish deals; and, for the man and woman on the street, a massive increase in mortgage debt as dream homes became part of a new, credit-frenzied, reality. At the height of the subprime boom, when investors were falling over themselves to purchase allegedly safe assets with returns higher than those available on low-yielding government bonds, the connection between ultimate borrower and ultimate lender became increasingly tenuous: the homebuyer in Arizona had little idea that her mortgage had, ultimately, been provided by Norwegian savers putting money aside for their future pensions.

Empire of Things: How We Became a World of Consumers, From the Fifteenth Century to the Twenty-First by Frank Trentmann

Abraham Maslow, Airbnb, Alan Greenspan, Anton Chekhov, Ayatollah Khomeini, behavioural economics, Berlin Wall, Big bang: deregulation of the City of London, bread and circuses, British Empire, Capital in the Twenty-First Century by Thomas Piketty, car-free, carbon footprint, Cass Sunstein, choice architecture, classic study, clean water, collaborative consumption, collective bargaining, colonial exploitation, colonial rule, Community Supported Agriculture, company town, critique of consumerism, cross-subsidies, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, deindustrialization, dematerialisation, Deng Xiaoping, deskilling, equity premium, Fall of the Berlin Wall, Fellow of the Royal Society, financial exclusion, fixed income, food miles, Ford Model T, full employment, gentrification, germ theory of disease, global village, Great Leap Forward, haute cuisine, Herbert Marcuse, high net worth, income inequality, index card, informal economy, Intergovernmental Panel on Climate Change (IPCC), Internet of things, it's over 9,000, James Watt: steam engine, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kitchen Debate, knowledge economy, labour mobility, Les Trente Glorieuses, libertarian paternalism, Livingstone, I presume, longitudinal study, mass immigration, McMansion, mega-rich, Michael Shellenberger, moral panic, mortgage debt, Murano, Venice glass, Naomi Klein, New Urbanism, Paradox of Choice, Pier Paolo Pasolini, planned obsolescence, pneumatic tube, post-industrial society, Post-Keynesian economics, post-materialism, postnationalism / post nation state, profit motive, prosperity theology / prosperity gospel / gospel of success, public intellectual, purchasing power parity, Ralph Nader, rent control, retail therapy, Richard Thaler, Right to Buy, Ronald Reagan, school vouchers, scientific management, Scientific racism, Scramble for Africa, seminal paper, sharing economy, Silicon Valley, Skype, stakhanovite, Ted Nordhaus, the built environment, the market place, The Spirit Level, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, Thorstein Veblen, trade liberalization, trade route, transatlantic slave trade, union organizing, upwardly mobile, urban planning, urban sprawl, Washington Consensus, women in the workforce, working poor, young professional, zero-sum game

A decade later, almost half of all mortgage funds were federally insured.24 It was a golden handshake between the banks and the state, and of historic importance for the expansion of private credit. For one, a home tends to be far more expensive than a radio or a fridge. Mortgages thus make up a much larger part of personal credit than ‘unsecured’ consumer credit. There is, secondly, a close correlation in modern credit societies between mortgage debt and other consumer credit. The greater the former, the greater tends to be the latter.25 What is decisive is mortgages rather than home ownership as such. Greece and Italy today have a higher home-ownership rate than the United States, but people there inherit homes and take out less credit.26 Mortgages, by contrast, simultaneously accustom households to taking on big debt and serve as a collateral that enables them to borrow more for other purposes.

…

In Britain, for example, the gross household saving ratio fell sharply from 11 per cent in 1992 to 2 per cent in 2007, and the ‘mean’ unsecured consumer credit had risen to £10,000 when the 2009 Great Recession hit – that is, as many households owed less than £10,000 as owed more than that. Mean mortgage debt stood at £100,000. These are large figures, but they were dwarfed by mean housing and pension wealth, which was over £200,000.52 Economists, by and large, turn to two models to explain what has happened to saving: the lifecycle and the permanent-income hypotheses. Both saw the light of day in the 1950s; Franco Modigliani articulated the former, Milton Friedman the latter.53 For Keynes, the primary motive for saving had been almost irrational pride: to leave a bequest for posterity.

…

Credit for goods and services made up a higher share in Britain and Germany (15–20 per cent); in Poland and Austria, it reached 40 per cent of total personal credit. Mortgages, then, make up the bulk of consumer credit, but they do so to a larger or smaller degree. It is a common misunderstanding to presume that because renting is widespread in the Netherlands and Germany, mortgage debt must be smaller, too. Land and property costs much more in Maastricht and Munich than in Missouri, which means that those Dutch and Germans who buy a home carry a disproportionately large burden of debt. The big difference between the Anglo-world and the rest in the 1990s and early 2000s was that, for the latter, unsecured credit (plastic, instalments, loans) shrunk as a share of private debt.

Rentier Capitalism: Who Owns the Economy, and Who Pays for It? by Brett Christophers

"World Economic Forum" Davos, accounting loophole / creative accounting, Airbnb, Amazon Web Services, barriers to entry, Big bang: deregulation of the City of London, Big Tech, book value, Boris Johnson, Bretton Woods, Brexit referendum, British Empire, business process, business process outsourcing, Buy land – they’re not making it any more, call centre, Cambridge Analytica, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, cloud computing, collective bargaining, congestion charging, corporate governance, data is not the new oil, David Graeber, DeepMind, deindustrialization, Diane Coyle, digital capitalism, disintermediation, diversification, diversified portfolio, Donald Trump, Downton Abbey, electricity market, Etonian, European colonialism, financial deregulation, financial innovation, financial intermediation, G4S, gig economy, Gini coefficient, Goldman Sachs: Vampire Squid, greed is good, green new deal, haute couture, high net worth, housing crisis, income inequality, independent contractor, intangible asset, Internet of things, Jeff Bezos, Jeremy Corbyn, Joseph Schumpeter, Kickstarter, land bank, land reform, land value tax, light touch regulation, low interest rates, Lyft, manufacturing employment, market clearing, Martin Wolf, means of production, moral hazard, mortgage debt, Network effects, new economy, North Sea oil, offshore financial centre, oil shale / tar sands, oil shock, patent troll, pattern recognition, peak oil, Piper Alpha, post-Fordism, post-war consensus, precariat, price discrimination, price mechanism, profit maximization, proprietary trading, quantitative easing, race to the bottom, remunicipalization, rent control, rent gap, rent-seeking, ride hailing / ride sharing, Right to Buy, risk free rate, Ronald Coase, Rutger Bregman, sharing economy, short selling, Silicon Valley, software patent, subscription business, surveillance capitalism, TaskRabbit, tech bro, The Nature of the Firm, transaction costs, Uber for X, uber lyft, vertical integration, very high income, wage slave, We are all Keynesians now, wealth creators, winner-take-all economy, working-age population, yield curve, you are the product

Thus, as Gabriel Zucman has noted, house price increases in the UK have ‘tended to boost the wealth share of the middle class, since most [of] its wealth is invested in housing, while upper groups mostly own financial assets’.78 Or, as Facundo Alvaredo, Tony Atkinson and Salvatore Morelli note of the UK: ‘housing wealth has moderated a definite tendency for there to be a rise in recent years in top shares in total wealth apart from housing’.79 But that is not quite the end of our account of the headline political-economic consequences of UK rentierization. This is because, in order to sustain the aforementioned house-price increases of recent decades, it has been necessary for UK households to take on sharply increasing amounts of mortgage debt. Moreover, as income and wealth inequality have increased, households have, as a result, also taken on increasingly large quantities of unsecured debt (see Figure 0.9).80 This latter phenomenon is not only about households at the lower end of the income spectrum using debt to compensate for stagnant real wages.

…

Thus were whole new asset classes conjured into existence, vastly expanding the financial rentier’s field of operation. Developments in housing finance warrant special mention in this regard, partly because they have been of particular significance socioeconomically. The colossal expansion of UK household mortgage debt in the past few decades (see Figure 0.9, p. 46) has seen the financing and ownership of housing become increasingly pivotal not only to the UK financial sector but also, on some accounts, to the UK economy more widely.23 But developments in housing finance are also noteworthy because it was this space that saw the first big policy interventions bearing on financial rentierism under neoliberalism in the UK.

…

As we will see for the UK (see especially Chapter 7), and as Thomas Piketty has observed for the advanced capitalist countries more generally, it is not only financial assets that have seen substantial price inflation since the 1980s in political contexts described by Piketty as ‘more favourable to private wealth than that of the immediate postwar decades’.82 With the ratio of median residential property price to median annual earnings in England and Wales increasing from 4.62 to 9.68 on new dwellings, and from 3.44 to 7.57 on existing dwellings, between 1997 and 2017, households took on increasing sums in mortgage debt, younger generations inevitably shouldering the main burden.83 Clearly, though, not all households have been caught up in the debt spiral. Furthermore, financial rents, alongside land rents (Chapter 7) and to a much lesser extent intellectual property rents (Chapter 3), occupy a special place among the seven different types of rent and rentierism that this book examines, insofar as these rents are not exclusively corporate rents, which the other types all are.

Better, Stronger, Faster: The Myth of American Decline . . . And the Rise of a New Economy by Daniel Gross

"World Economic Forum" Davos, 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, Airbnb, Alan Greenspan, American Society of Civil Engineers: Report Card, asset-backed security, Bakken shale, banking crisis, Bear Stearns, BRICs, British Empire, business cycle, business process, business process outsourcing, call centre, carbon tax, Carmen Reinhart, clean water, collapse of Lehman Brothers, collateralized debt obligation, commoditize, congestion pricing, creative destruction, credit crunch, currency manipulation / currency intervention, demand response, Donald Trump, financial engineering, Frederick Winslow Taylor, high net worth, high-speed rail, housing crisis, hydraulic fracturing, If something cannot go on forever, it will stop - Herbert Stein's Law, illegal immigration, index fund, intangible asset, intermodal, inventory management, Kenneth Rogoff, labor-force participation, LNG terminal, low interest rates, low skilled workers, man camp, Mark Zuckerberg, Martin Wolf, Mary Meeker, Maui Hawaii, McMansion, money market fund, mortgage debt, Network effects, new economy, obamacare, oil shale / tar sands, oil shock, peak oil, plutocrats, price stability, quantitative easing, race to the bottom, reserve currency, reshoring, Richard Florida, rising living standards, risk tolerance, risk/return, scientific management, Silicon Valley, Silicon Valley startup, six sigma, Skype, sovereign wealth fund, Steve Jobs, superstar cities, the High Line, transit-oriented development, Wall-E, Yogi Berra, zero-sum game, Zipcar

In March 2008 they helped JPMorgan Chase take over an ailing Bear Stearns, with the Fed lending $30 billion to a newly created investment partnership that would acquire dodgy assets from the listing Bear. It was called Maiden Lane I, after the narrow street in lower Manhattan that runs near the Fed’s New York branch.2 In the long, hot summer of 2008 Treasury and the Fed rushed to the aid of AIG, the massive insurer whose reckless extension of credit insurance on mortgage debt threatened to sink it, its counterparties, and the global financial system. In September 2008 Treasury formally assumed responsibility for the trillions of dollars of debt issued by the housing behemoths Fannie Mae and Freddie Mac, a move intended to shore up the banking system. In the weeks and months after Lehman Brothers collapsed in September 2008, the bailout machine kicked into higher gear.

…

Between 2007 and 2011 more than 4 million homes were repossessed by banks. After peaking at 69.1 percent in late 2005, the homeownership rate in the United States began to fall; it stood at 66.5 percent in mid-2011. Through a combination of default, pay-downs, and shifting to rentals, Americans have shucked nearly a trillion dollars in mortgage debt since the crisis. According to the New York Federal Reserve, by the third quarter of 2011 the outstanding totals of household mortgages and home equity lines of credit were off 9.6 percent and 10 percent, respectively, from their peaks. But housing was just the beginning. According to the credit card research firm Card Hub, the delinquency rate on credit cards rose from 3.9 percent in the second quarter of 2007 to 6.61 percent in the first quarter of 2009, leading the credit card companies to write off tens of billions of dollars in balances.

Money Moments: Simple Steps to Financial Well-Being by Jason Butler

Albert Einstein, asset allocation, behavioural economics, buy and hold, Cass Sunstein, Cornelius Vanderbilt, diversified portfolio, estate planning, financial independence, fixed income, happiness index / gross national happiness, index fund, intangible asset, John Bogle, longitudinal study, loss aversion, Lyft, Mark Zuckerberg, mortgage debt, Mr. Money Mustache, passive income, placebo effect, Richard Thaler, ride hailing / ride sharing, Steve Jobs, time value of money, traffic fines, Travis Kalanick, Uber and Lyft, uber lyft, Vanguard fund, Yogi Berra

I eventually sold my apartment in 1994 for £44,000, which was a loss of £18,000. Thankfully my overpayments had reduced the mortgage balance to about £42,000 by then, allowing me to move on. Global interest rates are currently at an all-time low, which has pushed up property values and caused lots of people to take on very high levels of debt, including mortgages. Mortgage debt is currently cheap and property values are high by historical standards – but it may not stay that way. History tells us that booms turn to busts and bubbles eventually burst, leaving a wave of wealth-destruction in their wake. Assuming you’ve got no ‘bad debt’ (see chapter five), you have an adequate cash emergency fund (see chapter 16), and you are receiving the maximum employer contributions to any workplace pension scheme (see chapter 33) overpaying your mortgage makes a lot of sense.

Pound Foolish: Exposing the Dark Side of the Personal Finance Industry by Helaine Olen

Alan Greenspan, American ideology, asset allocation, Bear Stearns, behavioural economics, Bernie Madoff, buy and hold, Cass Sunstein, Credit Default Swap, David Brooks, delayed gratification, diversification, diversified portfolio, Donald Trump, Elliott wave, en.wikipedia.org, estate planning, financial engineering, financial innovation, Flash crash, game design, greed is good, high net worth, impulse control, income inequality, index fund, John Bogle, Kevin Roose, London Whale, longitudinal study, low interest rates, Mark Zuckerberg, Mary Meeker, money market fund, mortgage debt, multilevel marketing, oil shock, payday loans, pension reform, Ponzi scheme, post-work, prosperity theology / prosperity gospel / gospel of success, quantitative easing, Ralph Nader, RAND corporation, random walk, Richard Thaler, Ronald Reagan, Saturday Night Live, Stanford marshmallow experiment, stocks for the long run, The 4% rule, too big to fail, transaction costs, Unsafe at Any Speed, upwardly mobile, Vanguard fund, wage slave, women in the workforce, working poor, éminence grise

., 136 Ghilarducci, Teresa, 78, 85, 97–101, 234 Githler, Charles and Kim, 134, 136, 137 glide path, 89 Goldberg, Herb, 225–26, 227 governmental measures Community Reinvestment Act, 203 Dodd-Frank Wall Street Reform and Consumer Protection Act, 110, 198, 218 Employee Retirement Income Security Act (ERISA), 81 financial literacy initiatives, 197–98 Pension Protection Act, 89 Proposition 13 (California), 225 Senate Subcommittee on Deficits, Debt Management, and Long-Term Economic Growth, 76–78 Social Security, 58, 80, 81 Graziosi, Dean, 181 Grimaldi, Mark, 44–46 Hacker, Jacob, 234 Harter, Kathy, 10 Herbert, Joe, 169 Hill, Catey, 159 Hira, Tahira, 165 Holmes, Selina, 204–5 Holt, Lester, 51 home ownership. See also real estate attitudes toward mortgage debt, 174–75, 176 as automatic savings plan, 175, 176 easy access to mortgages, 176–77, 193 foreclosure, 175 G.I. Bill, 175 as leverage, 177–80, 184 as middle-class value, 174–75 rate of, 192–93 real estate crashes, 175, 180–81, 193 social issues linked to, 175–76 successful investors in, 193–95 How to Prosper During the Coming Bad Years (Ruff), 33, 140 Huddleston, Pat, 111 Hulbert, Mark, 45–46, 142 Humpage, Anthony, 189 income inequality current levels, 28 equities holdings and, 78–79 gender-based wage gap, 153–54, 158 growth in, 8, 21–22 Occupy Wall Street movement, 233 risk-taking and, 166 spending decisions and, 228–29 unconcern about, 22–23 individual investors age demographic, 135, 141–42, 148 appeal of doomsday scenarios, 139–40 classes for, 132–33 day trading, 130–32 fear of retirement shortfall, 132–34 frequent trading, 130–31, 135, 168 frustration with professional advisers, 132 gender differences, 167–68 investment errors, 129 marketing aimed at, 127–28, 133–34 options trading, 131, 133–34 overconfidence, 168–69 televised financial news for, 143–49 World MoneyShow, 127–28, 134–37 insurance.

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., 200–201 Lloyd, Felix Brandon, 205–6 lobbying groups, 87–88, 99–100, 110, 200, 218 Lockyer, Bill, 100–101 Loibl, Cäzilia, 165 Lucas, Lori, 88 Lucht, Tracy, 16 Lundy, Jeff, 57 Lusardi, Annamaria, 159, 198 Mackay, Harvey, 34 Mad Money (CNBC), 143–47 Mahar, Maggie, 95 Malkiel, Burton, 33 Mamudi, Sam, 95 Mandell, Lew, 201, 207–8 Marquis, Milton, 83 marshmallow experiment, 211–12 Mathisen, Tyler, 82 McCarthy, Carolyn, 111 McGee, Micki, 33, 47 McGinn, Daniel, 179 McInturff, Bill, 75–76 McKenna, Laura, 27 medical expenses, 58, 59–60, 61 Mellan, Olivia, 227 Merrill Lynch, 162–63, 167, 213 Michelman, Kate, 59–60 Middle Class Millionaire, The (Prince and Schiff), 56 Miller, George, 100 Miller, Maurice Lim, 223 Millionaire Next Door, The (Stanley and Danko), 54 Mitchell, Olivia, 159, 198 Money Island game, 205–6 Money Makeover series, 1–2, 4 Money Navigator newsletter (Orman), 44–46 MoneyShow, 127–28, 134–37 Mooney, David, 109 Moore, Michael, 41 mortgage debt, 174–75, 176–77, 193 Mullainathan, Sendhil, 107–8, 116, 162, 166, 228 mutual funds. See stock and mutual fund markets Neasham, Glenn, 115 New York Stock Exchange, 15–16, 160–61 Nine Steps to Financial Freedom (Orman), 34–35 Nocera, Joe, 79 Noeth, Markus, 162, 166 Occupy Wall Street movement, 40, 233 Odean, Terrance, 128–29, 168 Odom, William E., 200 O’Donnell, John, 133 Online Trading Academy, 132–33 Onsite’s Healing Money Issues retreat, 226 options trading, 131, 133–34 Orman, Suze as antipoverty crusader, 41, 46 Approved Card prepaid debit card, 40–42 audience, 38 background, 29, 30–32 books, 34–35, 41 business deals and partnerships, 42–43 contradictory advice, 28, 38 Courage to Be Rich, The, 30, 35, 53 criticism of, 27–28, 35, 46 on Kiyosaki, 188 latte factor calculation, 53 Money Navigator newsletter, 44–46 New Age orientation, 31, 34 Nine Steps to Financial Freedom, 34–35 popularity, 27–30, 38–39 scolding and badgering, 36–38 spending habits, 32, 40 on variable annuities, 104 wealth and source of income, 40, 42, 47 on women’s financial incompetence, 153 You’ve Earned It, Don’t Lose It, 34 overspending by baby boomers, 141–42 celebration of, 57 Latte Factor, 48–53 wealth accumulation and, 54–55, 56–57 by women, 159–60 Palmer, Kimberly, 53 Parker, Richard, 23 Pastor, Lubos, 94–95 Pederson, Allen, 60 Pension Protection Act, 89 pension system.

Austerity: The History of a Dangerous Idea by Mark Blyth

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

But there is no such insurance in the repo markets, so repo-market investors protect their cash by receiving collateral equivalent to the cash lent. If the borrower goes bust, the lender can still get the money back, so long as, and this is critical, the collateral doesn’t lose value. What counts as high-quality collateral? Back in the early 2000s, it included such things as Treasury bills, of course. But increasingly, AAA-rated mortgage-debt securities began to be used as collateral, since T-bills were in short supply, which is how mortgages ended up in the repo markets.7 A decline in house prices in 2006 hit the value of these bundled mortgage securities. If you were using mortgage securities as collateral for loans in the repo market, you needed to find more collateral (which people were increasingly less willing to hold) or higher-quality collateral (alternative assets that were in short supply), or you would have to take a “haircut” (a discount) on what you would get back, all of which affected your bottom line.

…

Add to this the fact that Spanish mortgages are recourse loans, meaning that the bank can come after the debtor for the original loan—forever—and not for just the current value of the property, and mortgagers have every incentive to sit tight and not allow the market to clear, thus making the situation worse by inches. In the United States you can walk away from a mortgage and the house is the bank’s problem. In Spain, when you walk away from the house, the mortgage debt is still your problem. Take Ireland and Spain together and you do not have a story of profligate states, feckless workers, and all the rest. Certainly, the Spanish regional governments have a few white elephant projects that have worsened the situation, airports that have no traffic, massive opera houses with no customers, and the like; but these are symptoms, not causes.

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

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

No data existed on this “home-equity extraction,” as it later came to be known. But Greenspan estimated how much new mortgage debt might have been created as a result of the construction of new homes, and he calculated how much debt existing mortgage holders would normally repay in any given period. By taking his estimate for new mortgages and subtracting repayments on old mortgages, Greenspan arrived at the expected change in the total amount of mortgage debt in the economy. Now he was just one step away from the statistic he wanted. If the expected increase in mortgage debt was smaller than the actual change, the difference must represent additional mortgage lending to existing homeowners—home-equity extraction.

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It was said that you could walk the famous canyons near the stock exchange and hear only the rattle of backgammon dice through open windows. But by the early 1950s, financiers were active once again. The GI Bill had promised mass home ownership, turning a generation of Americans into mortgage borrowers; and once they had acquired a taste for mortgage debt, other kinds of borrowing soon followed. By the time Greenspan joined Townsend, consumer loans were becoming so ubiquitous that the bill collector emerged as “the central figure of the good society,” as one contemporary put it.17 Meanwhile, a southerner named Charles Merrill shocked the Wall Street establishment by promoting stock market investment to ordinary Americans.18 Thanks partly to Merrill’s hard-hitting advertisements, the amount of money invested in mutual funds shot up fivefold between 1950 and 1960.

…

By 2001, their combined balance sheets had swelled nearly ninefold: they now held $1.2 trillion of mortgages and mortgage-backed securities. Meanwhile, they also guaranteed payments on another $1.5 trillion of mortgage securities held by other investors. All told, Fannie and Freddie shouldered the risk associated with almost half of all outstanding residential mortgage debt—a market share that had nearly doubled in the span of just over a decade. Greenspan usually saw the bright side of financial innovation and agglomeration, but the near doubling of Fannie and Freddie’s market share was an exception. The explosion of over-the-counter derivatives reflected free choices by investors, leading Greenspan to give it the benefit of the doubt; in contrast, the rise of Fannie and Freddie reflected a sinister subsidy.

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

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

In turn, the level of bank capital relative to regulatory levels can be an important determinant of a bank’s cost of financing. But banks’ capital positions also tend to be strongly pro-cyclical since assets tend to increase in value in a boom and fall in a recession. This further enhances the potential potency of the financial accelerator, observed in the large build-up of mortgage debt and high leverage of the financial sector in the run-up to the financial crisis. It also means that in the aftermath of a financial crisis, where the banking system finds itself overleveraged, burdened with non-performing loans and insufficient capital, there can be a sharp drop in the flow of credit to the economy.

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Buccleuch, Henry Scott, 3rd Duke of budget deficits and austerity Burns, Arthur Burns, Mary business cycle theory Fisher Hayek Schumpeter Callaghan, James Cambridge School see also Keynes, John Maynard; Marshall, Alfred; Robinson, Joan Cambridge University Girton College Kings College Newnham College St Johns and women Canon capital accumulation capital investment capitalism in aftermath of 2008 financial crisis and communism derivation of term and Engels and the financial crisis of 2008 free-market and Hayek inequality and capitalist economies laissez-faire see laissez-faire and Marx and the Occupy movement and Schumpeterian ‘creative destruction’ socialism vs welfare state capitalism car industry Carney, Mark Carter, Jimmy Case, Elizabeth central banks Bank of England Bank of Japan European Central Bank Fed see Federal Reserve forward guidance macroprudential policy monetary policy tools see also quantitative easing (QE) Chamberlin, Edward Chicago School see also Friedman, Milton Chile China 1949 revolution asset management companies banking system Beijing Consensus Communist Party corporate debt Cultural Revolution domestic innovation economic transformation ‘effect’/‘price’ employment system entrepreneurs exports Five Year Plan (1953) foreign direct investment (FDI) and Germany industrialization and reindustrialization inequality innovation challenge legal institutions manufacturing Maoism and Marx national debt openness ‘paradox’ poverty reduction privatization R&D investment regional free trade agreement renminbi (RMB) as second largest economy services sector shadow banking smartphones social networks trade-to GDP ratio and the USSR wage increases women Churchill, Winston class Engels’ The Condition of the Working Class in England and Marx middle see middle class and Ricardo wage earner class Classical School of economics see also Mill, John Stuart; Ricardo, David; Smith, Adam Clinton, Bill Clinton, Hillary cloth clothing Coase, Ronald Cold War Collectivist Economic Planning collectivization Collier, Paul Columbia University communism Bolshevik Party and capitalism Chinese Communist League First International Marxism see Marxism and Robinson Socialist/Second International Third International USSR see Soviet Union Vietnamese vs welfare state capitalism Communist League comparative advantage theory competition ‘competing down’ (Schumpeter) imperfect between money providers perfect and Robinson wages and competitiveness computers Conard, Ed construction consultancy firms consumerism consumption and comparative advantage theory consumer spending and marginal utility analysis convergence hypothesis corn, free trade in Corn Laws repeal and Ricardo corporate debt Cowles Commission Crafts, Nicholas crafts credit crunch credit default swaps (CDS) credit rating Crimean War crypto-currencies currency crises first-generation second-generation third-generation currency stability Cyprus death duties debt Chinese corporate debt-deflation spiral and government bonds indexation and protection from and Minsky’s financial instability hypothesis mortgage debt national see national debt private corporate as share of GDP decentralization defence deflation debt-deflation spiral Fisher and combating deflation Japan self-fulfilling deindustrialization and globalization premature reversing/reindustrialization and trade US Deng Xiaoping depression see Great Depression (1930s); Long Depression (1880s); recession/depression diminishing returns to capital distributive lag model Douglas, David, Lord Reston Douglas, Janet DuPont East Asian ‘tiger’ economies see also Hong Kong; Singapore; South Korea; Taiwan eastern Europe Eastman Kodak Econometric Society Econometrica economic development challenges and Beijing Consensus financial/currency crises and institutions and Lewis model Myanmar and North and path dependence poverty eradication/reduction South Africa Sustainable Development Goals Vietnam and Washington Consensus economic equilibrium economic freedom economic growth and austerity barriers convergence hypothesis development challenges see economic development challenges drivers of 2 see also innovation; institutions; public investment; technology endogenous growth theories inclusive growth through investment Japan’s growth and Japan’s ‘lost decades’ Lewis model mercantilist doctrine of and new technologies policy debates on raising and poverty reduction and productivity debate/challenge slow growth and the future Solow model UK government’s renewed focus on and unemployment Economic Journal economic rent Ricardo’s theory of economies ‘animal spirits’ of crises see financial crises deflation see deflation emerging see emerging economies equilibrium in GDP see gross domestic product global macroeconomic imbalances growth of see economic growth inequality and capitalist economies inflation see inflation and international trade and investment see investment; public investment national debt see national debt QE see quantitative easing rebalancing of recession see recession/depression services economy see services sector and stagnant wages state intervention Economist education higher role in reducing inequality universal Eliot, T.

The American Way of Poverty: How the Other Half Still Lives by Sasha Abramsky

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, American Legislative Exchange Council, bank run, basic income, benefit corporation, big-box store, collective bargaining, deindustrialization, fixed income, Francis Fukuyama: the end of history, full employment, ghettoisation, Gini coefficient, government statistician, guns versus butter model, housing crisis, illegal immigration, immigration reform, income inequality, indoor plumbing, job automation, Kickstarter, land bank, Mark Zuckerberg, Maui Hawaii, microcredit, military-industrial complex, mortgage debt, mortgage tax deduction, new economy, Occupy movement, off-the-grid, offshore financial centre, payday loans, plutocrats, Ponzi scheme, Potemkin village, profit motive, Ronald Reagan, school vouchers, upwardly mobile, War on Poverty, Washington Consensus, women in the workforce, working poor, working-age population, Works Progress Administration

In 2000, the total level of student debt nationwide was estimated to be around $200 billion.11 A mere twelve years later, that number had increased to an astonishing $870 billion—or $24,000 for each graduate who left college having taken out loans. And, while underwater homeowners could use the bankruptcy system to clear their mortgage debts, there was no legal mechanism in place to allow student-loans to be similarly discharged. In April 2012, when Michigan Congressman Hansen Clarke proposed HR 4170, a Student Loan Forgiveness Act that would allow people to discharge their debt if they had paid at least 10 percent of their discretionary income on student loans for at least ten years, more than 1 million people signed petitions in support of the legislation.12 Yet the GOP-led House didn’t pass it.

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There’s no good reason these models shouldn’t become a key part of state and federal housing strategy in the near future, with credit unions able to access low-interest federal startup loans in return for guaranteeing to keep given numbers of people in their homes. More ambitiously, given the amount of toxic mortgage debt that the federal government was forced to buy up in the months following the 2008 collapse, there’s no reason that it shouldn’t use its status as a de facto lender of last resort to create similar profit-sharing agreements of its own with homeowners underwater on their loans or already skidding along the foreclosure route.

Portfolio Design: A Modern Approach to Asset Allocation by R. Marston

asset allocation, Bob Litterman, book value, Bretton Woods, business cycle, capital asset pricing model, capital controls, carried interest, commodity trading advisor, correlation coefficient, currency risk, diversification, diversified portfolio, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, family office, financial engineering, financial innovation, fixed income, German hyperinflation, global macro, high net worth, hiring and firing, housing crisis, income per capita, index fund, inventory management, junk bonds, Long Term Capital Management, low interest rates, managed futures, mortgage debt, Nixon triggered the end of the Bretton Woods system, passive investing, purchasing power parity, risk free rate, risk-adjusted returns, Robert Shiller, Ronald Reagan, Sharpe ratio, Silicon Valley, stocks for the long run, superstar cities, survivorship bias, transaction costs, Vanguard fund

It’s just P1: a/b c11 P2: c/d QC: e/f JWBT412-Marston T1: g December 20, 2010 Real Assets—Real Estate 17:3 Printer: Courier Westford 223 in comparisons between the NCREIF Index and the NAREIT Index that leverage has to be taken into account. HOME OWNERSHIP For many families in the United States, their home is their largest financial asset. In many cases, home ownership is leveraged with mortgage debt with the latter typically representing the largest financial liability of the family. But even taking into account mortgage debt, home ownership represents a substantial portion of net wealth for many families. So it’s important to study returns on homes as part of a larger study of investment returns. Many families believe that home ownership provides some of the highest returns that they earn in their lifetimes.

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

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

But the members of the FOMC knew otherwise, because they knew how the plan would work and what it was intended to do. The Fed had done quantitative easing once before, during the heat of the 2008 financial crisis. It was an emergency effort, an extraordinary thing for an extraordinary moment: The Fed directly bought mortgage debt to stabilize the mortgage market. Now Bernanke was suggesting that the Fed turn quantitative easing, for the first time, into a normal operating tool to manage the economy. The basic mechanics and goals of quantitative easing are actually pretty simple. It was a plan to inject trillions of newly created dollars into the banking system, at a moment when the banks had almost no incentive to save the money.

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Wall Street investors didn’t give the frackers money because the investors were stupid or because they believed wholeheartedly in the future production promises. They invested because the Fed was incentivizing them to invest. Thousands of wells were drilled across the country. The search for yield pushed money into commercial real estate. In 2013, a bond analyst named John Flynn was preparing for a wave of mortgage-debt failure. He called this apocalyptic moment “the Wall of Maturities.” The wall he referred to was the moment when billions of dollars in commercial real estate bonds, extended during the real estate bubble of 2006, were set to mature. This would be a moment of reckoning for the commercial real estate industry, spelling doom for irresponsible developers who borrowed money to build shopping malls, office parks, and factories when they had no realistic way of repaying the loans.

The Extreme Centre: A Warning by Tariq Ali

Affordable Care Act / Obamacare, Berlin Wall, bonus culture, BRICs, British Empire, centre right, deindustrialization, Dr. Strangelove, Edward Snowden, Fall of the Berlin Wall, financial deregulation, first-past-the-post, full employment, Great Leap Forward, labour market flexibility, land reform, light touch regulation, means of production, Mikhail Gorbachev, military-industrial complex, 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

Because they understand growth as the growth of businessmen’s profits, not the growth of social justice, redistribution, public services, access to housing and other necessities. Because the parties in power are concerned only for their continuation in office … Because no politician has to live with what they legislate for their ‘subjects’: insecurity, mortgage debt, uncertainty. We question this democracy because it colludes with corruption, allowing politicians to hold a private post at the same time as public office, to profit from privileged information, to step into jobs as business advisors after leaving office, making it very profitable to be a politician.