Greenspan put

Crisis Economics: A Crash Course in the Future of Finance
by Nouriel Roubini and Stephen Mihm
Published 10 May 2010

Leeson, “The Austrian School of Economics: 1950-2000,” both in Samuel, Biddle, and Davis, eds., Companion to History of Economic Thought, 262-77, 445-53. 54 Schumpeter’s worldview: Joseph Alois Schumpeter, Capitalism, Socialism, and Democracy (London: Routledge, 2006), 81-86. 55 According to some Austrian economists: See, for example, Murray Rothbard, America’s Great Depression (New York: New York University Press, 1973). 56 “Greenspan put”: Peronet Despeignes, “Greenspan Put May Be Encouraging Complacency,” Financial Times, December 8, 2000; Marcus Miller, Paul Weller, and Lei Zhang, “Moral Hazard and the US Stock Market: Analysing the ‘Greenspan Put,’ ” Economic Journal 112 (2002): C171-86. 57 the road that Japan paved in the 1990s: See, for example, Benjamin Powell, “Explaining Japan’s Recession,” Quarterly Journal of Austrian Economics 5 (2002): 35-50. 57 Economists who swear fealty to Keynes: Krugman, Return of Depression Economics, 74-77; Charles Yuji Horioka, “The Causes of Japan’s ‘Lost Decade’: The Role of Household Consumption,” Japan and the World Economy 18 (2006): 378-400. 59 “economists set themselves . . .”: John Maynard Keynes, A Tract on Monetary Reform (London: Macmillan, 1923), 80. 59 “Well, . . . this is probably a change . . .”: Conor Clarke, “An Interview with Paul Samuelson, Part Two,” Atlantic, June 18, 2009, online at http://correspondents.theatlantic.com/conor_clarke/2009/06/an_interview_with_paul_samuelson_part_two.php. 60 Scottish journalist: Charles Mackay, Memoirs of Extraordinary Popular Delusions and the Madness of Crowds (London: National Illustrated Library, 1852).

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Much as someone who wears a seat belt may be tempted to drive faster, banks assumed greater risks—and the potential for accruing greater profits—secure in the knowledge that if they failed, the federal government would make things right with their depositors. This same logic extends to any number of other government interventions in the economy. Earlier this decade, Wall Street analysts spoke of the “Greenspan put”—the belief that the Federal Reserve would rescue financial firms with easy money, special lines of credit, and lender-of-last-resort support. (A put is an option that an investor can purchase to hedge against a sharp market downturn.) The Greenspan put is precisely what happened when the crisis hit: the Federal Reserve stepped into the breach, rewarding incompetent risk taking with monetary largesse—or at least, that is how the Austrians would interpret it.

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By pumping vast quantities of easy money into the economy and keeping it there for too long, Greenspan muted the effects of one bubble’s collapse by inflating an entirely new one. This policy was the inevitable consequence of the contradiction at the heart of his approach to central banking: helplessly watching bubbles on the way up, and moving frantically to arrest the downward slide. Unfortunately, it created a Greenspan put. By the end of Greenspan’s final term as chairman of the Federal Reserve, the Greenspan put was an article of faith among traders: the markets believed that the Fed would always ride to the rescue of reckless traders ruined after a bubble collapsed. It created moral hazard on a grand scale, and Greenspan deserves blame for it. Greenspan also deserves blame for refusing to use the power of the Federal Reserve to regulate markets.

Panderer to Power
by Frederick Sheehan
Published 21 Oct 2009

James Grant, Money of the Mind: Borrowing and Lending in America from the Civil War to Michael Milken (New York: Farrar Straus Giroux, 1992), pp. 339, 341, 343. The Citicorp and Continental Illinois bailouts happened during Paul Volcker’s term at the Fed. What would later be called the “Greenspan put” preceded the future Federal Reserve chairman. (The Greenspan put was the belief that if the markets ever stumbled, Fed Chairman Greenspan would flood the market with money, which would trancate investors’ downside risk while launching a new speculative fury.) From a business perspective, it is unfathomable why banks, which are consistently incompetent in the lines of business in which they are authorized to transact, are continually given permission to expand and to enter new lines of business in which they lack experience.

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Most of the excitement was in New York, but the city’s demographics told a sober story. Manufacturing jobs fell from 16.8 percent in 1976 to 11 percent in 1986. The proportion of New Yorkers living under the poverty line rose from 15 percent in 1975 to 23.9 percent in 1985.21 Precursor to the “Greenspan Put” At the beginning of the 1980s, commercial banks were tottering. In the 1970s, they had plowed into the rising market: banks lent to commodity-producing countries. When commodity prices collapsed, so did the loans. Walter Wriston, chairman of Citicorp, led the charge into the Southern Hemisphere.

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He supported Volcker’s increasingly lonely policy by reminding readers that bond buyers thought a rapid expansion of the money supply could eventually reignite inflation (raising longterm bond rates).39 When the press was full of tattletale gossip on the acerbic relations between Volcker and the White House (specifically, Donald Regan), Greenspan told the Times: “It’s counterproductive and it’s unfortunate. The Fed is doing as good a job as it can do in these circumstances.”40 Regan was a tough cookie. Greenspan put the Fed and Volcker ahead of his own interests. Greenspan’s campaign for Fed chairmanship was subtle. Paul Volcker’s four-year term as chairman expired in August 1983, but it appears that the White House could not make up its mind about a successor. Wall Street put pressure on the White House to reappoint Volcker.

Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America
by Matt Taibbi
Published 15 Feb 2010

By the turn of the century, the effect of Greenspan’s constant money printing was definite and contagious, as it was now widely understood that every fuckup would be bailed out by rivers of cheap cash. This was where the term “Greenspan put” first began to be used widely. Aside: a “put” is a financial contract between two parties that gives the buyer the option to sell a stock at a certain share price. Let’s say IBM is trading at 100 today, and you buy 100 puts from Madonna at 95. Now imagine the share price falls to 90 over the course of the next two weeks. You can now go out and buy 100 shares at 90 for $9,000, and then exercise your puts, obligating Madonna to buy them back at 95, for $9,500. You’ve then earned $500 betting against IBM. The “Greenspan put” referred to Wall Street’s view of cheap money from the Fed playing the same hedging role as a put option; it’s a kind of insurance policy against a declining market you keep in your back pocket.

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A Cleveland Fed official named Jerry Jordan even expressed the idea with somewhat seditious clarity in 1998: I have seen—probably everybody has now seen—newsletters, advisory letters, talking heads at CNBC, and so on saying there is no risk that the stock market is going to go down because even if it started down, the Fed would ease policy to prop it back up. Eventually, the Iowa professor Paul Weller, along with University of Warwick professors Marcus Miller and Lei Zhang, would formally identify this concept in a paper called “Moral Hazard and the U.S. Stock Market: Analyzing the ‘Greenspan Put.’ ” By then, however, the term “Greenspan put” had been around for years, and the very fact that it was now being formally studied is evidence of the profound effect it had on the markets. “Investors came to believe in something the Fed couldn’t really deliver,” says Weller now. “There was this belief that the Fed would always provide a floor to the market.”

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It was a shell game—money comes in the front door as payroll taxes and goes right out the back door as deficit spending, with only new payroll taxes over the years keeping the bubble from popping, continuing the illusion that the money had never left. Senator Daniel Patrick Moynihan, way back in 1983, had called this “thievery,” but as the scam played out over the decades it earned a more specific title. “A classic Ponzi scheme” is how one reporter who covered Greenspan put it. Coming up with a scheme like this is the sort of service that endears one to presidents, and by the mid-eighties Greenspan got his chance at the big job. Reagan had grown disenchanted with Volcker. The administration apparently wanted a Fed chief who would “collaborate more intimately with the White House,” as one Fed historian put it, and they got him in Greenspan, whom Reagan put in the top job in 1987.

Fault Lines: How Hidden Fractures Still Threaten the World Economy
by Raghuram Rajan
Published 24 May 2010

Indeed, instead of discouraging the development of bubbles, the Fed encouraged it through an implicit commitment, which might have done far more damage than any other Fed action. This commitment, the so-called “Greenspan put,” essentially said that the Fed could not really tell when asset prices were building up into a bubble, and so instead the Fed would ignore asset prices but stand ready to pick up the pieces when the bubble burst. To understand why this commitment was made, we need to go back to 1996. The Greenspan Put In late 1996, the Fed chairman, Alan Greenspan, an astute and experienced (though somewhat ideological) economist, became concerned about the high level of the stock market.

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The Fed could be not only delaying the recovery of the housing market but also reinforcing the sense that it will not get in the way of price increases but will prevent price falls. The Greenspan put is quickly becoming the Bernanke put. In sum, the Fed’s conduct of monetary policy between 2002 and 2005, while roundly criticized by all but central bankers and monetary economists (with notable exceptions), had two important limitations. First, it was fixated on the high and persistent unemployment rate and did its best to bring it down by trying to encourage investment. It signaled that it would keep rates low for a sustained period and offered the Greenspan put if firms were still not convinced. Critics should recognize that this fixation was in full accord with its mandate and, more important, that there would have been political hell to pay if it had raised interest rates much earlier than it did.

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It fueled the flames of asset-price inflation by telling Wall Street and banks across the country that the Fed would not raise interest rates to curb asset prices, and that if matters went terribly wrong, it would step in to prop prices up. The commitment to put a floor under asset prices was dubbed the “Greenspan put.” It told traders and bankers that if they gambled, the Fed would not limit their gains, but if their bets turned sour, the Fed would limit the consequences. All they had to ensure was that they bet on the same thing, for if they bet alone, they would not pose a systemic threat. Equally important, the willingness to flood the market with liquidity in the event of a severe downturn sent a clear message to bankers: “Don’t bother storing cash or marketable assets for a rainy day; we will be there to help you.”

I.O.U.: Why Everyone Owes Everyone and No One Can Pay
by John Lanchester
Published 14 Dec 2009

I’ve mentioned the chronology already: the years of the “Goldilocks economy” and “Great Moderation,” growing neither too hot nor too cold, during which interest rates never moved by more than 0.25 percent at any time. During these years the markets came up with the phrase “the Greenspan put” to describe the Fed chairman’s apparent determination to protect share prices. A “put” is an option to sell shares, so “the Greenspan put” implied that Greenspan would always be there to bail out the market if it fell—which was a little paradoxical, because he had famously warned, as early as 1996, about “irrational exuberance” in the stock market. But he seemed to say one thing and do another, because if he wanted to chill that exuberance, a couple of sharp jolts to the interest rate, combined with a scary speech or two, would have done the trick.

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And that is the point at which hindsight sees Greenspan as having gone off the rails. On January 3, 2001, he broke with his policy of slow-and-steady movements in the interest rates and cut them by half a percent in one go, down to 6 percent, and followed in the subsequent months with further rate cuts—this being an example of the Greenspan put in its most flagrant form. After all, if the markets were irrationally exuberant in 1996 and had kept going up, why wouldn’t a crash, even one leading to a small recession, be desirable? The best analogy is to the management of forestry in a dry, hot country. The landscape needs fires—preferably small ones at regular and not-too-frequent intervals.

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Germain Depository Institutions Act, 185 Gaussian copula function, 116–17, 157–60, 163 Geithner, Timothy, 188 Germany, 58, 222, 229 banks of, 36, 77, 83, 227 housing in, 40, 91–92, 94 Nazis and, 138–39, 180 Glass-Steagall Act, 64–65, 187–88, 199–200 Goldilocks economy, 107, 174 Goldman Sachs, 40, 77–78, 163, 190, 225 profitability of, 78, 227–28 Goodwin, Sir Fred, 76–77, 204, 206 government, see politics, politicians Great Depression, 21, 65, 99, 170, 186–87, 199–200 greater fool theory, 104 Great Moderation, 107, 174 Greenspan, Alan: derivatives and, 166, 183–84 house prices and, 165, 173–74, 176 interest rates and, 107–8, 165, 173–77 regulation and, 184, 188–89 risk and, 142–43, 164–66, 174, 184 Greenspan put, 174 gross domestic product (GDP), 80–81 of Earth, 2–4, 80 free-market capitalism and, 14–15 of U.K., 32, 214, 220 Haarde, Geir, 12 Haji-Ioannou, Stelios, 227 Haldane, Andrew, 36–37 Halifax, 38, 89 Hamanaka, Yasuo, 51 Harlot’s Ghost (Mailer), 172 health care, 13, 17, 198, 217, 222, 226–27 hedges, hedge funds, 164–66, 171 definition of, 54n–55n LTCM and, 54–56, 80, 142, 162, 164–65, 230–31 risk and, 49–50, 52, 58, 115, 155, 205 hedonic treadmill, 218 heuristics, 137–38 hindsight bias, 137 Hollinger, 59 Home Owners’ Loan Corporation, 99 Hong Kong, 7–8, 13–14 Hongkong and Shanghai Bank, 7, 53 Hoover, Herbert, 98–99 houses, housing, home ownership, 27–29, 40, 82–102, 109–32, 149, 157–60, 163–66, 187 balance sheets and, 27–28, 38 bubbles in, 5, 86–87, 89–90, 92, 101, 115, 159–60, 170, 173–74, 176–78, 216–17, 219, 223 foreclosures on, 83–85, 126–31 in Iceland, 10–11 inflation and, 88, 101, 179–80 in Ireland, 92, 110, 170–71 leverage and, 60–61, 83, 95, 97 liquidity and, 28–29, 90, 96–97 for low-income borrowers, 100, 113, 118, 121–23, 126–27, 130–31, 163 politics and, 87–89, 91, 96–101, 177–78 prices of, 5, 28–29, 37–38, 61, 71, 86–91, 101, 109–11, 113, 115, 125, 157, 160, 164–66, 173–76, 194, 208 and sense of dislocation, 95–97 in U.K., 38, 87–98, 110, 122, 177–78 in U.S., 37, 82–86, 95, 97–101, 109–10, 114–15, 122, 125–31, 157–58, 163 see also mortgages HSBC, HSBC Holding, 36, 53 Hume, David, 147 Hypo Real Estate, 40 IBM, 58, 65, 69 Iceland, Icelanders, 15 economic crisis in, 9–12, 23–24, 40, 170, 216, 223 pots and pans revolution in, 223 Iguchi, Toshihide, 51 illusion of validity, 140 incentives, 206–11, 224, 228 for bankers, 19, 37, 206–8 bond-rating agencies and, 209–11 incomes, 4, 13, 17, 66, 171, 203–4, 212, 221 balance sheets and, 26, 28, 30–31 banking and, 19–20, 37, 206–8, 218 housing and, 60, 90, 93–94, 100, 126, 130–32, 163 inflation and, 92, 179 India, 3–4 industrialization, 96–97 inequality, see equality, inequality inflation, 107, 144, 147, 220–21 asset price, 109–10 housing and, 88, 101, 179–80 incomes and, 92, 179 interest rates and, 102–3, 172–73, 178–80, 221 ING Group, 36 Innumeracy (Paulos), 8 insolvency, see solvency, insolvency interest, interest rates, 11, 24, 58–64 bonds and, 20, 61–63, 103, 107–10, 112, 144 and cost of money, 102–3 credit and, 172–73, 175, 209 derivatives and, 20, 47, 58, 63–64, 66, 69–70, 114, 121–22 government determination of, 102–3, 107–8, 172–80, 221 Greenspan and, 107–8, 165, 173–77 loans and, 59–60, 66, 74, 102, 108, 145, 172–73 mortgages and, 8, 58, 86, 89, 91–92, 95, 100, 102, 108, 110, 112–14, 122, 128, 145–46, 174, 176, 212 risk and, 69–71, 144–45, 165 International Monetary Fund (IMF), 15, 19, 186 International Swaps and Derivatives Association (ISDA), 79–80, 183 investing, investments, investors, 28, 58–63, 101–9, 171–72, 175–77, 181, 187, 213, 221 banks and, 25, 30, 43, 228 blue chip, 106 bonds and, 62–63, 102–3, 107–8, 111, 208–9 of China, 109, 176–77 derivatives and, 54–56, 58, 69–70, 73, 117, 120, 132, 153, 158, 172, 184 diversification of, 146–48 hedge funds and, 54n–55n housing and, 86–88, 97, 101 interest rates and, 102–3 regulation and, 225–26 risk and, 5, 68, 70, 88, 103, 144, 146–53, 158, 165, 184, 190 in stocks, 59, 73, 101–7, 111, 146–52, 158, 175, 192 values and, 60–61, 104, 198 investment trusts, 55n Ireland, 15, 169–71, 177 economic contraction in, 170–71, 222–23 housing in, 92, 110, 170–71 Jacobs, Jane, 82 Japan, Japanese, 18, 51–54, 77 banks of, 43, 51, 229 derivatives and, 51–52, 54 Johnson, Simon, 19–20, 185–86 Jorion, Philippe, 156–57, 162 J.P.

Financial Fiasco: How America's Infatuation With Homeownership and Easy Money Created the Economic Crisis
by Johan Norberg
Published 14 Sep 2009

Instead, it treats the guests to its own bowl, filled to the brim with cheap credit, and it does not cut the supply until consumer prices start to show signs of being under the influence. But if this puts a damper on the atmosphere, the Fed immediately announces an afterparty and brings out even larger bowls to avoid losing momentum. In the market, this policy has been dubbed the "Greenspan put." Buying a "put" option means that you agree to sell something in the future at a predetermined price-if there is a crisis, Greenspan will ensure that your investments still fetch a reasonable price, as if you had bought such an option. His successor Ben Bernanke has acted similarly, so people in the market are now talking of the "Bernanke put" instead.

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Market Miscalculates, p. 122ff; O'Driscoll, "Asset Bubbles and Their Consequences." 22. Foust, "Alan Greenspan's Brave New World." 23. Doherty, "Can We Bank on the Federal Reserve." 24. Greenspan, remarks at the Economic Club of New York. 25. Bernanke, "Asset `Bubbles' and Monetary Policy." 26. Despeignes, "`Greenspan Put' May Be Encouraging Complacency." 27. Grant, Mr. Market Miscalculates, pp. 110-11. 28. Cooper, The Origin of Financial Crises. 29. The Economist, "Paint It Black." 30. Wolf, Fixing Global Finance, p. 95. 31. A summary of the literature can be found in Berument and Froyen, "Monetary Policy and U.S.

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de Rugy, Veronique. "Bush's Regulatory Kiss-Off." Reason, January 2009. de Rugy, Veronique, and Melinda Warren. "Regulatory Agency Spending Reaches New Height." In 2009 Annual Report, pp. 5-6. Arlington, VA: Mercatus Center and Washington University in St. Louis, August 2008. Despeignes, Peronet. "`Greenspan Put' May Be Encouraging Complacency." Financial Times, December 8, 2000. Doherty, Brian. "Can We Bank on the Federal Reserve?" Reason, November 2006. Donovan, Paul. "Investment Bankers of the World, Unite!" UBS Daily Roundup, September 19, 2008. http://uk.youtube.com/watch?v=36ZWywSg2VO. Dougherty, Carter.

Inside the House of Money: Top Hedge Fund Traders on Profiting in a Global Market
by Steven Drobny
Published 31 Mar 2006

Greenspan came into office in August 1987 and his first act a few weeks later was to raise the discount rate by 50 basis points.This unexpected tightening created volatility and uncertainty in the markets as traders adjusted to the style of a new Fed chairman. Some argue that Greenspan’s rate hike was actually the cause of the subsequent equity market meltdown a month-and-a-half later. Immediately after the stock market crash, Greenspan flooded the market with liquidity, initiating a process that came to be known as the “Greenspan put.”The Greenspan put is an implicit option that the Fed writes anytime equity markets stumble, in hopes of bailing out investors. Former Federal Reserve chairman William McChesney Martin famously observed that the job of a central banker is to “take away the punch bowl just when the party is getting started.”Alan Greenspan, on the other hand, seemed to interpret his role as needing to intervene only as the partygoers are stumbling home.

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At the same time, LTCM’s counterparties knew they were in trouble and at risk of imploding, leading them to hedge their own counterparty risk, further compounding LTCM’s mark-to-market woes. To mitigate default—and, some would argue, the potential collapse of the world financial system—the Federal Reserve Bank of New York called a meeting with LTCM’s creditors and implemented a bailout package. It was yet another iteration of the Greenspan put. LTCM was at the forefront of investing at the time and offers insight into some of the failings of risk management systems. Risk management systems based on historical prices are one way to look at risk but are in no way faultless. Financial market history is filled with theoretically low probability or fat tail events.

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—George Soros,April 2000 GLOBAL MACRO IS DEAD As 1999 rolled into 2000, many other global macro funds also closed down, prompting the popular press and Wall Street pundits to declare global macro “dead.”While 2000 may have marked the end of the $20 billion-plus global macro mega-funds, it was premature to cite the end of a strategy that profits from global misalignments and macroeconomic trends. When the stock market bubble finally did burst in March 2000, the Greenspan put was written once again as interest rates were reduced from 6.5 percent to 1 percent—levels not seen since the 1950s. It was in this new paradigm that the up-and-coming crop of global macro managers made their names. They caught not only the interest rate move, but also other parts of the classic macro view at the time: long bonds, short stocks, and eventually short the U.S. dollar.

The Corona Crash: How the Pandemic Will Change Capitalism
by Grace Blakeley
Published 14 Oct 2020

Higher asset prices encouraged greater levels of lending, while investors’ attempts to reach for yield reduced the cost of market finance for many less creditworthy corporations.7 Observers of US bond markets described what they saw as a bubble waiting to burst. Similar conclusions were drawn in the UK.8 In fact, ever since the ‘Greenspan put’ that followed the 1987 stock market crash, investors have counted on the fact that policymakers will hold interest rates down in the wake of a market crash.9 Central banks proved unable (some did not even try) to unwind the asset purchasing programmes implemented in response to the 2008 credit crunch.

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Sweezy, Monopoly Capital: An Essay on the American Economic and Social Order, New York: Monthly Review Press, 1966; John Bellamy Foster, ‘Monopoly-Finance Capital’, Monthly Review, vol. 58, no. 7, December 2006. 5 Ryan Banerjee and Boris Hofmann, ‘The rise of zombie firms: causes and consequences’, Bank for International Settlements Quarterly Review, September 2018. 6 Michalis Nikiforos, ‘When Two Minskyan Processes Meet a Large Shock: The Economic Implications of the Pandemic’, Levy Economics Institute, Policy Note 2020/1 (March 2020). 7 Martin Arnold and Brendan Greeley, ‘Central Banks Stimulus Is Distorting Financial Markets, BIS Finds’, Financial Times, 7 October 2019. 8 Jesse Colombo, ‘The US Is Experiencing a Dangerous Corporate Debt Bubble’, Forbes, 29 August 2018; Phillip Inman, ‘Corporate Debt Could Be the Next Sub-Prime Crisis, Warns Banking Body’, Guardian, 30 June 2019. 9 Matthew Watson, ‘Re-establishing What Went Wrong Before: The Greenspan Put as Macroeconomic Modellers’ New Normal’, Journal of Critical Globalisation Studies, no. 7 (2014): 80–101. 10 Alfie Stirling, Just about Managing Demand: Reforming the UK’s Macroeconomic Policy Framework, London: Institute for Public Policy Research [IPPR], 2018. 11 Marx, Capital, Vol. 1, p. 929. 12 Rana Foroohar, Don’t Be Evil: The Case Against Big Tech, New York: Currency/Random House, 2019. 13 See, e.g., Jonathan Taplin, Move Fast and Break Things: How Google, Facebook and Amazon Cornered Culture and Undermined Democracy, New York: Little, Brown, 2017, in which the author makes the now well-known claim that ‘Data is … the new oil’. 14 Foroohar, Don’t Be Evil; Martin Wolf, ‘Why Rigged Capitalism Is Damaging Liberal Democracy’, Financial Times, 18 September 2019. 15 Foroohar, Don’t Be Evil. 16 Matt Phillips, ‘Investors Bet Giant Companies Will Dominate After Crisis’, New York Times, 28 April 2020. 17 Matthew Vincent, ‘Loss-Making Tech Companies Are Floating Like It’s 1999’, Financial Times, 16 June 2019. 18 Martin Wolf, ‘Corporate Savings Are Contributing to the Savings Glut’, Financial Times, 17 November 2015; Peter Chen, Loukas Karabarbounis and Brent Neiman, ‘The Global Corporate Saving Glut: Long-Term Evidence’, VoxEU, CEPR Policy Portal, 5 April 2017. 19 Rana Forooha, ‘Tech Companies Are the New Investment Banks’, Financial Times, 11 February 2018. 20 Andres Diaz, ‘I’m a Small Business Owner.

The Man Who Knew: The Life and Times of Alan Greenspan
by Sebastian Mallaby
Published 10 Oct 2016

Instead, it had sided with commentators who rationalized the bubble, arguing that the abandonment of the rigid pre–World War I gold standard had inoculated the United States from boom-bust cycles, thereby neutralizing one of the main risks to investors and justifying a huge revaluation of the stock market.27 As Greenspan put it: The belief, widespread at the time, that the business cycle had finally been controlled by the institution of a managed currency, induced a sharp drop in risk premiums, presumably to irrational levels. . . . The sharp upward gyrations in stock prices—and other capital values—made the subsequent stock market reversal inevitable.

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The rise in the market had set off a rise in investment and consumer spending, which in turn had boosted profits and stoked animal spirits, triggering a further rise in the stock market. The 1920s Fed had been the enabler of this feedback loop—in order for investment and consumer spending to take off, companies and consumers needed access to credit. Faced with a jump in the appetite to borrow, the Fed had decided to “meet the legitimate demands of business,” as Greenspan put it. No doubt this had seemed safe: the resulting surge in lending was flowing to companies and households, not directly into asset markets. But money, once created, was bewilderingly difficult to trace. Like heat-seeking rockets, the newly minted dollars found their way into hot stocks, no matter which way they were fired initially.

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And that shift was troubling for a reason that Greenspan was supremely qualified to diagnose: high borrowing costs threatened to destabilize finance. Savings and loans were being forced to pay more for deposits, raising their cost of funding above the fixed income they received on their mortgage portfolios. As Greenspan put it to the New York Times in March, “The most important thing at the moment is to get interest rates down and avoid what I think is a potentially very dangerous financial problem in the thrift institutions.”24 While Greenspan urged deficit reduction to bring down interest rates, the supply-siders advanced a different remedy.

Financial Market Meltdown: Everything You Need to Know to Understand and Survive the Global Credit Crisis
by Kevin Mellyn
Published 30 Sep 2009

Throughout the long years when financial market excesses were slowly building into a volcanic eruption, the Wizard did two things that made us all happy and many of us rich. First, he managed to keep money and credit cheap and abundant. Second, he moved quickly to bail out financial markets every time they overplayed their hand. Market players came to believe in a ‘‘Greenspan put’’ that would always be available to them if things went south. Since they would suffer no pain if they fell, the acrobats of high finance felt free to swing higher and higher. They lost the wholesome fear of falling to earth. The Wizard had made their world risk free: Heads I win, tails the Fed will bail me out.

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His conclusion is that the Fed should have thrown open the floodgates and created as much money and credit as possible. He even once spoke about dropping bales of money from helicopters if need be. This earned him the nickname Helicopter Ben, which in part accounts for the generally good reception the market gave him when he succeeded Alan Greenspan as Board Chairman. The markets had always counted on the Greenspan put and Bernanke seemed likely to throw money at problems too. During 2008 and 2009, the Fed became very aggressive about taking loans onto its own balance sheet, expanding which firms could qualify for the discount window (if you are not yet a bank holding company, you can probably sign up using Legal Zoom) and cutting rates to the bone.

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Germain Act, 130–131 GDP (Gross Domestic Product), 6, 14, 27, 133, 169, 171, 188 General Agreement on Tariffs and Trade, 115 Genoa and origins of banking and finance, 77–79 Glass-Steagall, 141, 149, 159 gold, xiv–xvi, xix, 8, 12, 19, 34, 83–84, 106, 147, 149, 154–155, 184 Goldman Sachs, 159 Goldsmiths, 83 gold standard, 94–98, 108, 115, 125–126, 137–139, 155, 162 Graham-Leach-Bliley Act of 1999, 159 Great Inflation, 130, 152, 154, 156 Great Moderation, 140–141, 152 Greenberg, Maurice ‘‘Hank,’’ and AIG, 138, Index Greenspan, Alan, 101, 111, 140, 157 ‘‘Greenspan put,’’ 101, 111 Gresham, Sir Thomas, 80, 82 GSE (Government Sponsored Enterprises), 57, 133, 142, 176, 186 Health Care, 51, 162, 187–189 Hedge Funds, 25–27, 65 High Street (UK equivalent for Main Street), 91 High Street Bank, 89. See also joint-stock companies and clearing banks household, balance sheet, 7–8, 15, 19; debt, 27; income, 7 IET (Interest Equalization Tax), passed in 1963, 147, 149, 153 IMF (International Monetary Fund), 115–116 inflation, 43–44, 46, 57, 67, 112, 130, 140, 151–154; the Great Inflation, 152, 154, 156 Insolvency vs. illiquidity, 110 institutional investors, 22, 24–29, 44, 46, 50, 52–53, 60, 65, 91, 93, 99, 127, 142 insurance, x, 7, 13, 16, 23–24, 44, 52, 64, 66, 70, 82, 91–92, 100, 124, 128–132, 142, 157, 159, 170 ‘‘intermediation,’’ 37, 39–41, 58, 71–72, 78, 91, 158, 185 investments, xvi, 2–3, 15, 17–19, 23–28, 51, 55, 59, 61, 65, 78, 84, 93, 97, 114–116, 123, 131, 153, 157, 167, 175, 186, 189; types of investment instruments, 40–53 Japan, 4, 95, 150; banking crisis, 112, 126, 171–73; bubble economy, 166–71, 186; economic model, banking system, 100, 171 Johnson, Lyndon B.

Extreme Money: Masters of the Universe and the Cult of Risk
by Satyajit Das
Published 14 Oct 2011

Alan Greenspan, chairman of the Federal Reserve, supported the rush to debt: “Rising leverage appears to be the result of massive improvements in technology and infrastructure...experience...has made me reluctant to underestimate the ability of most households and companies to manage their financial affairs.”13 Companies used cash flow from operations or new borrowings to repurchase their own shares to boost their stock price. Alan Greenspan put the practice down to a slowdown in innovation and excess capital.14 Stock buybacks left the company with more debt and a weaker financial position.15 In 1987 Standard Oil of Ohio (Sohio), once part of the grand dame of oil companies but now owned by Britain’s BP, advertised in leading financial magazines—“Standard Oil not standard thinking.”16 An arty graphic depicted a drop of oil in which a reflection of an oil well was visible.

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Economist Robert Wade disagreed: [Greenspan] and other U.S. officials see it as imperative to make sure that the troubles in Asia are blamed on the Asians and that free capital markets are seen as key to world economic recovery and advance; the idea that international capital markets are themselves the source of speculative disequilibria and retrogression must not be allowed to take root.10 The Greenspan put ensured that at the first sign of trouble central bankers—“pawnbrokers of last resort”11—flooded the system with money, lowering interest rates to protect risk takers. The strategy ensured successive, larger blow-ups in financial markets in 1987, 1991, 1994, 1998, 2001, and 2007. Martin Wolf, the chief economics writer for the Financial Times, argued: “What we have [in banking] is a risk-loving industry guaranteed as a public utility.”12 Greenspan did not see any contradictions in the bailout of LTCM: “some moral hazard, however slight, may have been created by the Federal Reserve’s involvement.

…

Shortly after, he switched tack, praising Bush’s plan to eliminate taxes on dividends, and arguing that the cuts would have limited effects on the budget. Democratic Senator Harry Reid called Greenspan “one of the biggest political hacks we have here in Washington.”22 Greenspan’s true constituency was the markets. He exemplified deregulation and the extraordinary gains they provided to bankers. The Greenspan put guaranteed that the central bank would save them from their folly. Greenspan’s policies were grounded in “asymmetric ignorance.”23 As Fed chairman, he repeatedly stated that central bankers could not anticipate price bubbles or do anything about them because it was impossible to know when asset prices were too high.

The End of Indexing: Six Structural Mega-Trends That Threaten Passive Investing
by Niels Jensen
Published 25 Mar 2018

Hence the capital-to-output ratio drops, and so does wealth-to-GDP. The road to mean reversion As the full impact of the Global Financial Crisis became apparent, nobody was surprised to see that the wealth-to-GDP ratio had dropped back towards its long-term mean value. In the US, it landed at about 3.6 times. Greenspan had retired by then, but the Greenspan Put was still alive and kicking; now in the form of QE, and wealth-to-GDP began to climb yet again. In the context of the ongoing rise in US wealth-to-GDP, I note that US wages have begun to rise again when measured as a percentage of GDP, following a slump that lasted almost 15 years, and that has caused a squeeze on corporate profits.

…

* * * 68 In this chapter, whenever I refer to household wealth or just wealth, I refer to the sum of household wealth and wealth controlled by non-profit organisations, which is how the Federal Reserve defines and measures US household wealth. 69 The same approach can be applied to P/E ratios, and the mean value for the US equity market P/E ratio is about 15. 70 The Greenspan Put is a term used to describe the Federal Reserve’s perceived desire under Alan Greenspan’s leadership to prop up financial securities markets by lowering interest rates. 71 As of the end of Q3 2017, according to the Federal Reserve. 72 I have data going back to the early 1950s. 73 Data for the UK going back to 1850 suggests that the ratio between labour and income has been largely stable for at least 165 years.

Fed Up: An Insider's Take on Why the Federal Reserve Is Bad for America
by Danielle Dimartino Booth
Published 14 Feb 2017

The debacle was widely blamed on program trading—when stocks dropped to a certain price, computers dumped them—combined with a potent brew of market hysteria. But the day after, October 20, 1987, marked a more significant point in Wall Street history. The FOMC slashed the fed funds rate by half a percentage point to just under 7 percent. Then the mother of all storks delivered the “Greenspan Put” with the release of this one-sentence statement: “The Federal Reserve, consistent with its responsibilities as the Nation’s central bank, affirmed today its readiness to serve as a source of liquidity to support the economic and financial system.” As Pavlov was to dogs, the Fed was to market players.

…

By the end of the March 2009 FOMC meeting, the group approved a significant expansion of its bond-buying program. To the existing plan to buy $600 billion in mortgage bonds, the Fed tacked on an additional $1.05 trillion in mortgage bonds and Treasury securities. Talk of stimulus growing from billions to trillions was music to investors’ ears. They were finally convinced that the Greenspan Put would indeed be continued by Bernanke. But that dramatic expansion of bond purchases wasn’t enough for Yellen, who called for more stimulus at the April 2009 FOMC meeting. “Now that we’ve tested the waters, it’s time to wade in by substantially increasing our purchases of Treasury securities,” Yellen said.

…

See also District Banks; Federal Open Market Committee (FOMC) auditing of, calls for, 253–54 author’s hiring by and early experience at, 30–42, 46 DiMartino Booth’s recommendations for, 263–66 chairman of, 42–43 (See also specific Chairman) creation of, 2 economists of, 46–50, 62–64 financial crisis of 2008 and (See financial crisis of 2008) hubris and myopia of, 46–50, 236 Keynesian wealth effect model of, 6–7 lack of diversity at, 63–64 liquidity trap created by, 209–11 organization of, 42–45 politics and, 42–44 potential consequences of policies of, 252–53 profits and expenses of, 35–36 purpose of, 2, 41–42 shadow banking system and, 167–69 stress tests and, 170–71 fed funds interest rate, 3, 42, 212 September 2007 rate cut, 91 2008 decisions regarding, 102–3, 118, 119, 154–55, 157–63 Yellen raises, December 2015, 262 zero-interest-rate policy, 3, 8, 159–63, 175, 176, 218–21 Feldstein, Martin, 82 Ferguson, Niall, 56, 198 financial crisis of 2008, 2–10 AIG bailout and, 138–39 Bear Stearns’ collapse and, 105–16 Bear Stearns hedge fund bankruptcies and, 89–90 discount window opened to bond dealers in, 118 fed funds rate decisions in response to, 102–3, 118, 119, 154–55, 157–63 FOMC meetings during, 152–63 housing bubble and (See housing bubble) Lehman Brothers collapse and, 130–37, 145–47 losses from credit crunch reported during, 120–21 money market fund’s breaking the buck and, 140–42 PWG recommendations, 104–5 quantitative easing, adoption of, 160 Rajan’s paper warning of banking risks and, 93–96 shadow banking system and, 121–29, 167–69 short selling, temporary ban on, 143 TARP and, 142–43 Washington Mutual sale to JP Morgan & Chase, 143 yen carry trade, unwinding of, 90–91 zero-interest-rate policy, adoption of, 159–63 Financial Times, 108–9, 121 Fischer, Stanley, 234, 246–47 Fisher, Leslie, 67–68 Fisher, Richard, 19–20, 23–24, 61–62, 67–73, 76–77, 90, 147, 173, 212–13, 228–30, 234, 248–49, 254, 260 DiMartino Booth’s daily briefings for, 100–101 calls for end to QE2, 214–15 campaigns to dismantle too-big-to-fail banks, 186–87 defends Fed lending facilities, 169 education of, 68–69 extension of ZIRP to 2013, dissent to, 219–21 Fed bull market, consequences of, 238–39 at FOMC meetings, 76–78, 81–84 housing bubble and, 89 Operation Twist, dissent to, 224 opposition to QE and ZIRP of, 169, 175, 179–81 pre-briefings for, 164–67 QE2 and, 195, 197 on Texas economy’s outperformance, 226–27 2008 fed funds rate decisions and, 103, 118, 119, 154–55, 157–60, 161–63 Fitch Ratings, 27 flash crash, 189–90 Foreign Exchange (FX), 168 Foroohar, Rana, 7 Fortune, 112 forward guidance, 81 Frank, Barney, 120, 139, 220 Freddie Mac, 22, 120 Free to Choose (Friedman & Friedman), 59 Free to Choose (TV series), 59 Friedman, Milton, 48, 59–60, 87, 101 Friedman, Rose, 59 Friedman, Stephen, 148 Fuld, Dick, 29, 131–37, 146–47 Fundamental REO, 232 Galbraith, John Kenneth, 46 Geithner, Timothy, 51–55, 89–90, 113, 143–44, 147, 200 AIG bailout and, 138–39 appointed Treasury Secretary, 170 Bear Stearns rescue and, 109–12, 114 failure to see housing bubble, 55 Lehman collapse and, 135–36 money market fund’s breaking the buck and, 140–42 General Electric, 47, 169 General Motors, 46 Gingrich, Newt, 223 Globalization and Monetary Policy Institute, 82 Glucksman, Lew, 132 GMAC, 169 Goldman Sachs, 14, 115, 133, 143–45, 147–48, 168, 232, 257–60 Goldsborough, Alan, 119 Goncalves, George, 31 González, Henry B., 36 Gorton, Gary, 125–27, 128 government shutdown, 234 Grant, James, 198 Great Depression, 177 Great Moderation, 65, 87 Greece, bailout of, 188–89 Greenburg, Alan, 105 Greenspan, Alan, 6, 13, 16–17, 19, 26, 47, 60, 77, 78, 91, 153, 220 Black Friday and, 64–65 education of, 48–49 financial crisis and, 167 housing bubble and, 8, 20–21, 23, 27, 50 inflation targeting and, 195–96 irrational exuberance comment of, 11, 12 Long-Term Capital Management crisis and, 14, 15 on too-big-to-fail banks, 187 Greenspan Put, 64–65 Gregory, Joe, 131 groupthink, 9, 50, 166, 197 Gunther, Jeffrey, 207, 208 Hackett, Jim, 71 Haines, Mark, 216 Harker, Patrick, 259 Hartnett, Michael, 1 Hatzius, Jan, 29 Hayes, Samuel L., 144 Hayman Capital Management, 115 high-frequency trading, 190 Hilsenrath, Jon, 80, 195, 223, 228, 233, 237, 245, 260, 262 Hoenig, Thomas, 181, 197, 210, 213 household formation, 211 housing bubble, 6, 20–29 adjustable rate mortgages (ARMs) and, 22 author’s warnings regarding, 23–26 Bernanke and, 23, 74 Fisher on, 89 FOMC conclusions regarding lack of, 78–79 Geithner’s failure to anticipate, 55 Greenspan and, 8, 20–21, 23, 27, 50 lowered mortgage standards and, 21–22 reinflating of, in 2012, 232 subprime mortgages and, 21, 22, 27, 28, 74–75 systemic risk and, 26, 28 Yellen’s failure to see, 86–87, 88–89 housing market, 4–5, 215.

Republic, Lost: How Money Corrupts Congress--And a Plan to Stop It
by Lawrence Lessig
Published 4 Oct 2011

That’s the story of Wall Street in the 2000s: While some portion of the market for derivatives was no doubt driven by a genuine need for the particular flexibility of a derivative, a huge proportion was simply black cars being painted red. The winners in this new market were the drivers of these freshly painted cars, and the firms that had donenanup filepos-id="filepos184813">27 To say that the financial sector escaped the government’s regulation, however, is not to say that the sector escaped regulation. As Alan Greenspan put it: “It is critically important to recognize that no market is ever truly unregulated…. The self-interest of market participants generates private market regulation.”31 Even if the banks didn’t have to worry about rules emanating from the CFTC, SEC, or Federal Reserve, they still had to worry about the constraints imposed upon them by the competitive market.

…

For the large banks, the risk was quite sensible—for them, at least when you count an implicit promise by the government to bail the banks out if the economy went south. Indeed, as Raghuram Rajan puts it, “What is particularly alarming is that the risk taking may well have been in the best ex ante interests of their shareholders.”38 It was clear to most that the economy as a whole had this promise from the Federal Reserve. This was the “Greenspan put,” which referred to the policy by the Federal Reserve to intervene to counteract a collapse in the market. A “one-sided intervention policy on the part of the Federal Reserve,” as Marcus Miller and his colleagues put it, led “investors into the erroneous belief that they [were] insured against downside risk.”39 This is insurance, and as with all insurance, it could well have encouraged additional risky behavior.

…

Financial Crisis Inquiry Commission, Financial Crisis Inquiry Report (2011), 211 (quoting Moody’s COO Andrew Kimball). 37. Ibid., xvii. 38. Raghuram G. Rajan, Fault Lines: How Hidden Fractures Still Threaten the World Economy (Princeton, N.J.: Princeton University Press, 2010), 152. 39. Marcus Miller, Paul Weller, and Lei Zhang, “Moral Hazard and the U.S. Stock Market: Analyzing the ‘Greenspan Put,’ ” CSGR Working Paper no. 83/01 (2001), available at link #81. Financial Crisis Inquiry Commission reached a similar conclusion. See Financial Crisis Inquiry Commission, Financial Crisis Inquiry Report (2011), 60–61. See also Rajan, Fault Lines, 112–14. 40. Rajan, c. Rnt>, 148. 41. Simon Johnson and James Kwak, 13 Bankers (New York: Pantheon Books, 2010), 151–52.

Other People's Money: Masters of the Universe or Servants of the People?
by John Kay
Published 2 Sep 2015

Gerald Corrigan, president of the New York Federal Reserve Bank’.5 (In 1994 Corrigan would join Goldman Sachs, where he became chairman in 2007.) Put simply, the Federal Reserve made funds available to banks to lend in support of share prices. The measures had the desired effect, and US stocks regained pre-crash levels within a year. The readiness of the US central bank to support the US stock market would become known as ‘the Greenspan put’, and was exercised vigorously (if less effectively) after the new economy bubble burst in 2000. Greenspan retired from the Fed in 2006, aged seventy-nine. His timing was fortuitous. The global financial crisis began the following year. The Fed’s statement spoke of the ‘responsibilities of the Nation’s central bank’.

…

What is the source of this influence – and does it have any rational basis? Whatever President Sarkozy may have perceived, it was the voters of France, not rating agencies in New York or bond traders in London, that turfed him out of office. Close attention to market opinion is a corollary of the Greenspan doctrine. But the focus of the Greenspan put was on equity markets, where supporting consumer confidence through rising asset prices became – and remains – an objective. How did this attention to bond markets, the concern of Carville and Sarkozy, come into being? The analysts at Moody’s and Standard & Poor’s who terrified the French president knew nothing that employees of national finance ministries and central banks do not know – indeed, considerably less.

…

Gerald 242 Countrywide Financial 150, 152, 293 Craig, James 26 credit cards companies 27, 210 debt 54 origin of 185–6 profitability 113 credit default swaps 41, 60, 61, 64, 73, 100, 101, 119, 120, 121, 139, 152, 153, 223 credit expansion 54, 98 Crédit Lyonnais 33 credit ratings 21, 101, 248 credit risk 42, 75, 177, 192 Crédit Suisse First Boston 167, 292 credit-scoring 84, 87, 290, 291 Crosby, James 125 crowd-funding 81 D Dad’s Army (television series) 12 Dahinden, Vincent 124 Daschle, Tom 230 debit cards 186 debt reduction 241 debt securities 101, 107 debt-to-value ratio 149 democracy 4, 52, 308 deposit channel 25–6, 147–8, 173–94 activities of 188–94, 189, 192 directed by retail banks 291 household wealth 173–80, 175, 179 the payment system 181–8 ring-fencing 194, 287 simplification needed 213 deposit insurance 25, 121 deposit protection schemes 135 Derbyshire Building Society 90 deregulation 13, 28, 31, 149–50, 151, 246–7, 292 derivative contracts 191, 192, 323n11 derivatives market 2, 19, 35, 38, 110 portfolios 98 regulation 57, 234 securities 2, 15, 17, 41, 71, 131 Detroit, Michigan 254 Deutsche Bank 33, 104, 136–8, 166, 169, 191–2, 192, 193, 200, 219, 222, 266, 282, 286, 303, 323n11 Diamond, Bob 34, 35, 261, 267, 295, 300 Dickens, Charles: Martin Chuzzlewit 201 Dimon, Jamie 14–15, 35, 231 Dirks, Ray 228 Disney, Walt 70, 71 diversification 21, 27, 28, 29, 32, 33, 45, 95–9, 153 ‘alternative assets’ 98 building societies 151 buying all available stocks 99 coin-tossing game 96 correlation 96, 97–8 Exchange Traded Funds 99 hedge funds 98–9 passive funds 99 diversification divorce 74 DLJ 313n15 Dodd-Frank regulatory regime 236–7, 271 Doerr, John 167 dollar devaluation (1971) 14, 36 Donoghue, Mrs 283 dot.com boom 40 Draghi, Mario 42, 139 Dreamworks 21 Drexel Burnham Lambert 46 drug use 22 ‘Dutch book’ 68, 116 E eBay 187 economic policy 240–69 the British dilemma 262–9 consumer protection 259–62 financial markets and economic policy 248–52 Maestro 240–48 pensions and inter-generational equity 252–9 Economist, The 115 ‘Edge, the’ 114–18, 288 Edinburgh Britain’s second financial centre 11, 263 investment trusts in 26 Edison, Thomas 196 education 253, 259 efficient market hypothesis (EMH) 69–70, 99 Einstein, Albert 129 El Paso oil business 117–18, 232 electricity 245–6, 278 eligible counterparty 282–3 Elizabeth II, Queen 161 Emanuel, Rahm 301 embezzlement 127 emerging markets 39, 42 Emerson, Ralph Waldo: The Conduct of Life 181 emperor’s guard’s new clothes, the 309–10 empire, decline of 13 Enron 123, 124, 126, 127, 158, 176–7, 197, 246, 317n5 Equitas 107 Equity Funding 228 equity markets 23, 85, 168–9, 249, 288 Ericsson 108 Espirito Santo 271 Eurodollar market 13, 20, 120, 121 European Central Bank 42, 98, 138, 139, 183, 243, 244 European Commission 184, 289 European Monetary System 184 European Parliament 184, 328n6 European Union (EU) 194, 220, 226, 228, 273, 287 Eurostat 250 Eurozone 158, 183, 243, 250 creation of 129 crisis 41–2, 139, 301 indebtedness in 184 exchange rates fixed 18 flexible 18 forward 73 Exchange Traded Funds (ETFs) 99 synthetic 99 exchange-traded funds 280 Exchequer Partnerships 158, 159 extended family 78 Exxon Mobil 96, 101, 120, 134, 161, 163, 164, 189, 196 F Facebook 81, 162–3, 166, 167, 185, 196 ‘fair value’ 125–6, 191 fallacy of composition 89 Fama, Eugene 69 family support 79 Fannie Mae 75, 91, 135, 152, 230, 317–18n5 Farkas, Lee 152, 293 FBI 131 febezzle (‘functionally equivalent bezzle’) 127, 128, 132, 136, 176, 177, 190 Federal Deposit Insurance Corporation (FDIC) 25, 135, 247 Federal Reserve Bank of Kansas City symposium (Jackson Hole, Wyoming, 2005) 56–7, 58, 73, 79, 102, 181, 236, 256, 280 Federal Reserve Bank of New York 57, 183, 232, 242, 243 Federal Reserve Board 5, 41, 56, 57, 58, 134, 183, 231, 240, 243, 245, 247 Federal Reserve System 13, 40, 90, 98, 150, 183, 245 Federated Department Stores 204 fee structures 204 Ferguson, Charles 236 Feynman, Richard P. 276, 327n3 Fidelity 109, 199, 200, 213 finance sector a bias to action 203–8 control of risk 6, 7 economic significance 6 excess in the industry 6 export contribution 265 greedy individualism 24 growth of 1–2, 33 heavy criticism of 233 as just another business 5 labour force 263 lack of sanction application 7 lobbying 230, 302, 306 major role in politics 4 management of household financial affairs 6 matching of borrowers and lenders 6, 7 past and current attitudes in 23–4 payments system 6, 7, 25, 281 profitability 132–40, 134 qualitative assessment 265 recurrent crises 35, 307 regarded as having unique status 4–5 remuneration 54, 112 role of 143 search 144 sense of personal entitlement 24, 300 share in GDP 264–5 skills 15 stewardship 144 structural reform 7 taxation 266–7 work incentives 7 workers in finance 6–7, 125 finance theory 5 Finance Watch 328n6 financial advisers 197, 199, 291 Financial Conduct Authority 230, 237, 261 Financial Products Group 293 financial sector, regulation of see regulation Financial Services Authority 243, 247, 303 Financial Services Compensation Scheme 260 Financial Times 68, 115 financialisation 4–7, 36, 45, 72, 163, 165, 172, 259 and complexity 276, 278 conflation of roles of agent and trader 198 and the conglomeration 133 direct impact of 176 effect on corporate behaviour 78 and emergence of large asset management companies 200 emphasis on monetary policy 241 in Germany 169 and hedge funds 289 and housing 149 national and international 39 and risk 55 and secondary markets 170 and social security 255 Summers supports 57 transition from agency to trading 84 two main componenents of 16 Fink, Larry 200 First Boston 200 First Data Corporation 186 First World War 221 fiscal arbitrage 122, 123, 223 FISIM (financial services indirectly measured) 264 Fitch rating agency 313n6 Fitzgerald, Scott: The Great Gatsby 17, 297 FitzPatrick, Sean 156, 293–4 Five Star Movement 306 fixed commissions 29 fixed interest, currency and commodities (FICC) 22, 107, 110, 111, 118, 125, 160, 191, 194, 288 fixed-interest securities 190, 193 Flaubert, Gustave: Sentimental Education 80 Florida land boom (1920s) 201 Forbes magazine 204, 231 Ford, Henry 45, 70, 71 foreign exchange transactions speculators in 18–19 value of 2 Fortune magazine 23 ‘four horsemen’ 167, 168 Fox, Justin 70 fractional reserve banking 88 France corporatism 303–4 defeat of Sarkozy 248, 249 downgraded bonds 248, 249, 250 housing 149, 174 ‘trente glorieuses’ 36 Frankfurt financial centre 26 Freddie Mac 75, 135 free market 18, 59, 238, 247, 302 Frick, Henry Clay 44 Friedman, Milton 60, 63 Free to Choose 56 front running 28 FrontNational 306 Frost, Robert: ‘Provide, Provide’ 252 FT Alphaville 16 Fuld, Dick 24, 32, 72–3, 75, 231, 293 full employment 241 fund managers 66, 86, 108, 115, 206, 209, 212 future of finance 297–308 futures 19 G G8 and G20 economic summits 220 Galbraith, J.K. 127, 201 Galton, Francis xi gambling 130–31, 289 close regulation of 71, 72 Lloyd’s coffee house 71–2 lottery 65, 66, 68, 72 Gates, Bill 174, 268 Gaussian copula 22 GEC 48, 51 GEICO 107 Geithner, Timothy 57–8, 73, 75–6, 92, 104, 183, 230, 232, 239, 276, 306, 307 Geithner doctrine 271 Gemeinschaft 17, 61, 255 General Electric 46, 196 General Motors 45, 49 general share price indexes 98 Generali 27 Generally Accepted Accounting Principles (GAAP) 193 Gensler, Gary 288 Germany corporatism 303, 304 ‘economic miracle’ 36 housing 149, 174 indebtedness to 183–4 Landesbanken 169 Mittelstand 52, 168, 169, 170, 171, 172 role of Bundesbank 243 social market economy 219 state pensions 253 Gesellschaft 17, 61, 255 Gingrich, Newt 230 Glass-Steagall Act (1933) 25, 28, 33 Glaxo 96 global financial crisis (2007–9) and bank assets 91 bankers’ cognitive dissonance 102 begins in the USA 41 causes of 194, 220, 271 collapse of asset-backed securities market 21 collapse of sub-prime mortgages 109 costs of 285 and derivative contracts 192 and diversification 32 emergency measures 285–6 Gaussian copula 22 and liquidity 188, 278, 286 misallocation of housing finance 148 most culpable figures 293 unprecedented public intervention 41 the worst financial crisis since the Great Depression 15 globalisation 13 of capital flows 176, 180 of financial markets 17 and income inequality 53–4 pressure on regulatory structures 14 ‘gnomes of Zurich’ 18 gold standard 13, 18, 36, 181, 241 Golden Dawn 306 Goldman Sachs 1, 14, 31, 55, 57, 59, 63, 104–5, 114, 115, 117, 118, 120, 135, 143, 158, 160, 164, 232, 233, 250, 258, 266, 282, 283, 284, 288, 294, 300, 306 Code of Business and Ethics 118 Goldsmith, Oliver: The Deserted Village 49 goodwill 31, 258–9 Goodwin, Fred 14, 34, 149, 156, 169, 231, 293 Google 80, 83, 162, 167, 196 Gould, Jay 44 government assets and liabilities 000 government bonds 17, 42, 86, 155, 178, 208, 222, 290 government debt 128, 178, 190, 203, 245, 250, 251 government spending 253 Graham, Ben 176 Grasso, Dick 49 Great Depression 12, 15, 25, 36, 57, 218, 221, 225, 258, 308 ‘Great Moderation, the’ 40, 57, 104 Greece accounting manipulation 158, 250 adoption of a common currency 41 government debt 42, 128 refinancing of Greek credit 42 Greenspan, Alan 57, 63, 104, 119, 181, 245, 276 and Ayn Rand 79, 240 and ‘Black Monday’ 242 chairman of the Federal Reserve Board 56, 58, 181, 240–41, 242 and Fed priorities 247–8 and the Markowitz model 68–9 and mortgage defaults 97 and risk 73 testimony to Congress 67–8, 240 ‘Greenspan doctrine’ 56, 60, 67, 68, 71, 87, 101, 249 ‘Greenspan put, the’ 242, 249 Grillo, Bepep 306 Grimaldis of Monaco 123 gross domestic product (GDP) 251, 256, 264–5, 265, 266 gross national income (GNI) 265–6 gross value added (GVA) 265 group insurance 76–7 Grubman, Jack 293 H Haldane, Andrew 139, 264 Halifax Building Society 31, 32, 140, 164, 258–9 becomes a public company 124 competition for the ‘talent’ 193–4 ‘the Edge’ established in wholesale financial markets 114 and fixed-interest securities 190, 193 Group Treasury 106, 107, 111, 129 origins 106 rescued by the British government 124 response to changing times (1990s) 129 takes over the Bank of Scotland 124, 125 the world’s largest mortgage lender 106 worthless windfall shares 127–8 Hamamatsu Photonics 168 Hambrecht & Quist 167 Hambros Bank 158 Hanson 45, 46–7 ‘hard’ commodities 17 Harding, David 111–12, 124 Hartlepool nuclear power station, northeast England 158 Harvard University 5, 14–15 Harvey-Jones, Sir John 51 Hawkins, Sir Henry 61, 64, 116 Hayek, Friedrich 225 HBoS 32, 91, 124, 125, 135 healthcare 77, 78, 79, 253, 257–8 hedge fund managers 23, 99, 109, 282 Hedge Fund Research 323n9 hedge funds 27, 98–9, 110, 191, 194, 284, 289, 323n9 hedge fund centre, Mayfair, London 263 Helyar, John 46, 164 Henderson, David 58 ‘hidden champions’ 168 high-frequency trading 2, 111, 280, 305 Hill, Lord 322n14 Hope, Bob 160 Hornby, Andy 14 horse-racing 72, 116 House of Commons library 115 House of Lords 283 House of Morgan 25, 35 Household International 34–5 housing 148–54, 290 causes of crisis in housing finance 153 collapse of thrifts 150 equity release 54 house prices (US) 41, 43, 174, 259 houses as physical assets 146–7 low-cost 79 mortgage defaults 97 owner-occupied housing stock 53, 149, 151 specialist lenders 150 HSBC 1, 24, 34–5, 286, 328n22 Hubler, ‘Howie’ 130 Hurricane Katrina (2005) 79, 256 I Ibsen, Henrik: An Enemy of the People 285 Iceland: bank and compensation scheme collapse 260 ICI 45, 46–8, 51, 78 Iksil, Bruno 35, 130 ‘I’ll be gone, you’ll be gone’ culture 125, 128, 129, 131, 133, 152, 156, 204, 273 imperialism 13, 218 income distribution 52–4, 53 Independent Commission on Banking 139, 287 India, economic growth in 53 inflation 36, 54, 178, 241–2, 258 information asymmetry 60, 74, 76, 251, 317n2 information technology 18, 19–20, 31, 168, 185 infrastructure, property and 154–60 initial public offering (IPO) 113 Inside Job (film) 236 insurance companies 16, 27, 29, 120, 197, 199, 208, 213, 264 Intel 29, 167 interest rates and inflation 241, 242 long-term 251 intergenerational accounting 258 intermediation 80–105 bad intermediaries 81–2 competition 271 direct/indirect 82, 83 and diversification 96 facilitating 7 and the internet 81 leverage 100–105 managed 83, 201, 212–13 the role of the middleman 80–99 total costs of 207 transparent 83, 84, 201–2, 203 International Financial Reporting Standards (IFRS) 193 International Labour Organization (ILO) 263 International Monetary Fund (IMF) 13–14, 38, 39, 56, 58, 139, 220, 302 international reply coupons 131 International Swaps and Derivatives Association (ISDA) 61, 119, 193 internet 182, 183, 185 connectedness 81, 83 and intermediation 81 Interstate Commerce Commission 233, 237 investment banking FICC trading 107 global expansion of American banks 33 investment trusts 26, 27 relationships 16 within commercial banks 22 investment banks boutique 205 ‘dark pools’ 29 economists in 248–9 legal partnerships 30 modern objectives 197 and rating agencies 249 and search 197 investment channel 26, 148, 174, 175, 195–213 a bias to action 203–8 fails to meet the needs of businesses and households 213 investable assets 202–3, 203 the role of the asset manager 208–13 simplification needed 213 and sovereign wealth funds 253 stewardship 195–203, 203 investment companies 26, 27, 96, 177, 197, 199, 200, 201, 202 investment funds closed-end (managed) 212 open-ended (transparent) 212 Investor B 108 investors allocation of risk 57, 60, 73 and credit ratings 21 foreign 39 institutional 23, 28, 46 large 98 and leverage 101 long-term 94 losses of 43 private 28 property 99 retail 66 small 30, 99 sophisticated 23 Ireland bank workers’ strike (1970) 182 collapse of banking system (2008) 42, 138, 182 Isaacson, Walter 71 Ishmael, Stacy-Marie 16 Israel defence forces 171 high-technology start-up sector 117 It’s a Wonderful Life (film) 12–13 ITT 45 J Japan credit expansion 98 economic growth 36, 39 imagined competitive threat from 221 and quantitative easing 245 speculative bubble (late 1980s) 38–9, 280 jobbers 25, 28, 29–30 Jobs, Steve 70, 71, 162, 196 Johnson, Simon 302 Jordan Marsh department store 46, 90 J.P.

Stress Test: Reflections on Financial Crises
by Timothy F. Geithner
Published 11 May 2014

When I started at the Fed, the federal funds rate was just 1 percent, the lowest it had been since the fifties. Greenspan had responded to the LTCM crisis, the dot-com bust, and September 11 with aggressive blasts of liquidity, prompting criticism that his predictable interventions to refuel markets whenever they sputtered were creating a bad moral hazard precedent. The argument was that the “Greenspan Put”—a put is a contract that pays off when an asset’s value declines, providing insurance against bad outcomes—encouraged investors to take too many risks, because they figured the Fed would create a soft landing for them if they encountered turbulence. With the Fed’s rates so low, and spreads—the difference between interest rates on riskier securities and super-safe Treasuries—so narrow, investors were certainly “reaching for yield,” taking on more risk and leverage in search of better returns.

…

Six months later, in a presentation to the FOMC, Fed economists projected that even if there were a 20 percent nationwide decline in housing prices, it would cause only about half the economic damage of the bursting of the dot-com bubble. Everyone could see there was “froth” in some housing markets, as Greenspan put it. We all knew lax lending standards were helping families buy more expensive homes with less money down. Other families were staying put, then using their existing homes as ATMs by borrowing against their soaring home values. I had seen in Japan and Thailand how lavishly financed real estate booms can end in tears.

…

We were accused of being clueless and trigger-happy, of trying to boost asset prices and rescue speculators instead of focusing on macroeconomic fundamentals. We cut rates another half point at our next formal meeting, to 3 percent, prompting more howls of protest that we were reinstating the Greenspan Put. Fisher dissented, saying we shouldn’t have cut rates at all, continuing to see inflation around every corner. It looked like we were lurching. When it came to the expectations game of monetary policy, I often talked about how important it was to get the theater right as well as the substance.

The Financial Crisis and the Free Market Cure: Why Pure Capitalism Is the World Economy's Only Hope
by John A. Allison
Published 20 Sep 2012

One of the main reasons was that every time there was a problem in the economy, the Fed would act aggressively to eliminate the downside. This encouraged all of us in business to believe that the Fed had the ability to eliminate downside risk.11 In the stock market, this psychology became known as the Greenspan “put.” If things went bad, you could depend on Greenspan to print money, cut interest rates, and save the economy and the stock market. By 2007, BB&T (and all other banks) had business and consumer lenders with more than 10 years’ experience who had not seen the impact of a major national economic correction, especially in the real estate markets.

…

More ominous still has been the Fed’s three-year 1,675 percent increase in U.S. bank reserves since the summer of 2008, more than 11 times faster than the previous record rate of growth (149 percent from 1937 to 1940). 10. Thomas Sargent was recently awarded the Nobel Prize in Economics for his work on rational expectations. My actual experience in banking and working with business decision makers supports his technical conclusions. Human actions drive economic activity. 11. See Peronet Despeignes, “‘Greenspan Put’ May Be Encouraging Complacency: Moral Hazard May Be Created by the Interventions of the Fed,” Financial Times (London), December 8, 2000, p. 20. See also “When Markets Are Too Big to Fail,” editorial, New York Times, September 22, 2007. 12. See George Selgin, “Less than Zero: The Case for a Falling Price Level in a Growing Economy,” occasional paper, Institute of Economic Affairs, London, 1997. 13.

13 Bankers: The Wall Street Takeover and the Next Financial Meltdown
by Simon Johnson and James Kwak
Published 29 Mar 2010

The future accordingly looks bright.35 Greenspan was naturally predisposed to be friendly toward the financial sector and its desire to be left alone by government. As a central banker, he first made his mark injecting liquidity into the financial system to pull the stock market out of its 23 percent fall on Black Monday, October 19, 1987. This was the first example of what came to be known as the “Greenspan put”—the idea that if trouble occurred in the markets, the Fed would come to their rescue.* Greenspan cut interest rates sharply in 1998 following the Russian crisis and in 2001 following the collapse of the Internet bubble, each time helping to cushion the impact of the downturn and arguably pumping up the next bubble.

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For all intents and purposes, Wall Street had taken over. * A put option gives its holder the right to sell an asset, such as a share of stock, at a predetermined price. If the stock falls sharply in value, the put option allows the holder to sell it at a higher-than-market price, and is therefore a form of protection against risk. The “Greenspan put” was thought to be the equivalent of a put option for everyone in the market. * Owning a house has other advantages, such as increased freedom in deciding what to do with the house and land and increased peace of mind. However, these advantages have nothing to do with the value of the house as an investment. 5 THE BEST DEAL EVER These amendments are intended to reduce regulatory costs for broker-dealers by allowing very highly capitalized firms that have developed robust internal risk management practices to use those risk management practices, such as mathematical risk measurement models, for regulatory purposes.

Paper Promises
by Philip Coggan
Published 1 Dec 2011

Investors learned an important lesson from this crisis. If asset markets fell far and fast enough, central banks would ride to the rescue. In a sense, the central banks had insured investors against enormous losses. This policy became known, in a nod to the technical intricacies of the options market, as the ‘Greenspan put’.12 In the long run, protecting investors served to encourage speculation. As Russell Roberts describes the process: ‘What we do in the United States is make it easy to gamble with other people’s money – particularly borrowed money – by making sure that almost everybody who makes bad loans gets his money back anyway.’13 Investors borrowed to buy assets.

…

Certainly, it seemed more reliable than the impact on bond yields; within a month of the launch of QE2, as it became known, the crucial ten-year bond yield was half a percentage point higher than when the Fed announced the programme. This raised a number of issues. If the main impact of QE2 was on equity, rather than bond, prices, was the Fed simply providing a subsidy to the stock market? If so, this appeared to be a repeat of the ‘Greenspan put’ – the idea that the Fed underwrote share prices. Arguably, this is not the Fed’s proper role and creates the danger that the market will collapse if the Fed withdraws its support. Another possibility is that QE has proved more successful in reflating the economies of the developing world than the developed.

Modernising Money: Why Our Monetary System Is Broken and How It Can Be Fixed
by Andrew Jackson (economist) and Ben Dyson (economist)
Published 15 Nov 2012

This is mainly as a result of the growth of the British banking industry relative to the size of the economy – currently in the UK the ratio of domestic banking assets to GDP is the highest it has been at any comparable time in history (from 50% of GDP in the 1950s to 550% of GDP in 2010). 9. A recent example of such behaviour was the ‘Greenspan put’, which was the name given by financial markets participants to the belief that when financial markets unravel the chairman of the Federal Reserve (Alan Greenspan), would come to the rescue. Nobel Laureate in Economics Joseph Stiglitz cited the ‘Greenspan put’ as one of the causes of the speculative bubble which led to the financial crisis. (Stiglitz, 2010) 10. Moral hazard is when the provision of insurance changes the behaviour of those who receive the insurance in an undesirable way.

The Price of Time: The Real Story of Interest
by Edward Chancellor
Published 15 Aug 2022

Low inflation gave Greenspan the freedom to apply monetary balm at moments of financial distress. In late September 1998, the Fed funds rate was cut by 25 basis points after the near failure of Long Term Capital Management, an over-leveraged hedge fund. The markets responded warmly to the advent of what was called the ‘Greenspan put’ – an unwritten contract with Wall Street that committed the Federal Reserve to intervene to halt market declines. Between October 1997 and its peak two and a half years later, the Nasdaq Index of technology stocks enjoyed a near threefold gain. In valuation terms, this was the greatest bubble in US history.

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(The Big Brother show started the following year and, nearly two decades later, a reality TV star became US president.) It can be viewed, too, as an allegory for the bubble economy that also came into existence at around this date. A couple of months after The Truman Show opened in cinemas, the ‘Greenspan put’ emerged from the Fed’s response to the crisis at the hedge fund Long-Term Capital Management. As in The Truman Show, we have come to live in a controlled environment, with its fake money, fake interest rates, fake economy, fake jobs and fake politicians. Our bubble world is sustained by a combination of passive acquiescence and powerful vested interests.

…

H., 242 Draghi, Mario, 61, 122–3, 145, 146, 147, 240, 293, 305 Drucker, Peter, 163 Dudley, William, 238 Dugas, Laurent, 56 Dumoulin, Charles, 25 Dutch Republic, 13, 33, 35–6, 39, 49, 63, 68 Dutot, Nicholas, 53–4, 57 East India Company, 33, 36–7, 37*, 53, 70 Easterly, William, 189–90 ecological systems, 154–5 economic growth: and Borio’s thinking, 134, 135–9; Brazilian ‘miracle’, 257–8; and ‘bubble economy’ concept, 183–7; during deflationary periods, 100–101; and digital technologies, 127–8, 151–2, 176–7; and Draghi’s policy at ECB, 146–8; and Fed’s easy money policy, 111, 112, 115, 124, 152–3, 182–3, 238; and global interest rates prior to crisis, 118, 135; and globalization, 260–61; in Great Depression era, 142–3; and Hayek, 296, 298; and inequality, 203–6, 216–17, 237, 299; and inflation, 108, 108*; and inflation targeting, 123; in Japan of 1980s, 105–8; in Japan of 1990s, 100–101, 146, 147; led by finance, 266; and meaning of ‘wealth’, 179–82, 193–5; negative impact of building booms, 135–6, 144–5, 148; and Piketty’s theory, 216–17; in post-crisis Iceland, 300–301; productivity collapse in post-crisis decade, 150–51, 152–3; and reduced interest rates after a bubble, 114, 136, 138, 145–6; relation to interest rates, xxiv, xxv, 10, 12, 44, 89, 124–9, 141, 162, 237–8; secular stagnation concept, 77, 124–9, 131, 132–9, 151, 205–6; slow recovery from Great Recession, 124–5, 126–9, 131–2, 150–53, 298–9, 304; in Soviet Union of 1950s, 278; as strong after Second World War, 126, 302; as strong in 1920s USA, 89, 89–90, 108, 143; as subordinated to financialization, 162–71, 182–3, 203–6, 237, 260; vast expansion in China, 265–74, 275–82, 283–9 economic models: canonical model used by central banks, 118, 131, 153*, 207; and demographics, 127, 131; distributional issues as suppressed in, 207; ignoring of resource misallocations, 153*; no place for money and credit in, 118; and perceptions of risk, 230; and productivity puzzle, 151; rational actors/perfect foresight assumptions, 118; unreal reality of academic models, 138, 207 The Economist, 63, 67, 71–2, 73, 77 EDF (French utility), 225 Edmunds, John C., 181 Egypt, 77, 78, 255, 262 Einstein, Albert, 8 Elizabeth II, Queen, 114 Ellington Capital Management, 223 Emden, Paul, 80* emerging markets: Brazilian crash (2012–13), 257–8; BRICs, 254–5, 257–8; capital controls return after 2008, 262, 291; capital flight from (starting 2015), 262, 285–6; demand for industrial commodities, 128; epic corruption scandals, 258; and extended supply chains, 261; flooding across South East Asia (2010), 255; ‘Fragile Five’, 258–9; growth of foreign exchange reserves, 252, 253, 254–5, 256; impact of ultra-low interest rates on, xxiii, 253–60, 262–3; international carry Trade, 137, 237–8; overheating during 2010, 255, 256; post-crisis capital flows into, xxiii, 253–9, 262–3; and recent phase of globalization, 260–61; recovery from 2008 crisis, 124; and savings glut hypothesis, 129, 268–9; ‘second phase of global liquidity’ after 2008 crisis, 253–9, 262–3; and taper tantrum (June 2013), xxiii, 137, 239, 256–7, 259, 263; Turkish debt, 258–60; vulnerability to US monetary policy, 137, 262–3, 267–8 see also China employment/labour markets, xx, 151–2, 240, 260–61, 260*, 296; after 2008 crisis, 210, 211; new insecurity, 211, 298 Erdogan, Recep Tyyip, 259 European Central Bank (ECB), 144, 145, 147, 239, 240, 293; inflation targeting, 119, 120, 122–3; and quantitative easing, 146, 241, 242; sets negative rate, 147, 192–3, 244, 299 European Union, 187, 241, 262 Eurozone, 124, 150–51, 226; and political sovereignty, 293, 293†; sovereign debt crisis (from 2010), 144–8, 226, 238, 239, 241, 273, 293 Evans, David Morier, 73 Evelyn, John, 36, 45 Evergrande (Chinese developer), 279, 288, 310 executive compensation schemes, 152, 162, 163–4, 170, 204, 206, 207 Extinction Rebellion, 201 ExxonMobil, 166 Fang’s Money House, Wenzhou, 281–2 farming: agricultural cycle, 11, 14, 88; and ‘Bank of John Deere’, 167; barley loans in ancient Mesopotamia, 5–6, 6*, 7, 8, 10, 11, 14; bubbles in post-crisis decade, 173; in China, 283; and language of interest, 4–5; loans related to consumption, 6, 25; US deflation of 1890s, 99 Federal Reserve, US: asymmetrical approach to rates, 136–7; as carry trader, 222; cognitive dissonance in, 118–19; Federal Reserve Act (1914), 83; ‘forgotten depression’ (1921), 84, 86, 100, 143; forward guidance policy, 131*, 133, 238, 239, 240, 241; and Gold Exchange Standard, 85, 87, 90*; the ‘Greenspan put’, 111, 186; impact on foreign countries, 137, 239, 240–41, 255–6, 259, 262–3, 267–8, 285; inflation targeting, 119, 120, 241; Long Island meeting (1927), 82–3, 88, 92; mandates of, 240, 262; and March 2020 crash, 305–6; Objectives of Monetary Policy (1937), 97; Open Market Committee (FOMC), 109, 112–13, 115†, 120, 164, 228, 238, 239, 240; Operation Twist (2011), 131*, 238; parallel with US Forest Service, 154–5; and post-Great War inflation, 84; as the ‘price of leverage’, xxi–xxii; quantitative easing by, 12*, 76, 131*, 137, 175, 215, 228, 236, 238, 239–40, 241; raised rates announcement (2015), 138, 239; reaches ‘zero lower bound’ (2008), 243–4; response to 1929 Crash, 98, 100, 101, 108; suggested as responsible for 2008 crisis, 116–17, 118–19, 155, 204, 226–7; TALF fund, 175; taper tantrum (June 2013), xxiii, 137, 239, 256–7, 259, 263; ultra-easy money after 2008 crisis, xxi, 60, 124, 131–8, 146, 149, 152–5, 181–3, 206–17, 221–4, 230, 235–41, 243–4, 262, 291–2; Paul Volcker runs, 108–9, 145; Janet Yellen runs, 120 see also Bernanke, Ben; Greenspan, Alan Feldstein, Martin, 119 Ferri, Giovanni, 277* Fetter, Frank, 30 Field, Alexander, The Great Leap Forward, 142–3 financial crisis (2008): accelerates financialization, 182–3; and complex debt securities, 116, 117–18, 231; ‘crunch porn’ on causes of, 114; economists who anticipated crisis, 113–14, 132; failure of unconventional monetary policies after, xxi, xxii, 43–4, 291–4, 298–9, 301–3; Fed’s monetary policy as suggested cause, 116–17, 118–19, 155, 204, 226–7; generational impact of, 211–12, 213; as ‘giant carry trade gone wrong’, 253–5; global causes of, 117–18; Icelandic recovery from, 301–2; and inequality, 204, 205–17, 299; interest at lowest level in five millennia during, xxi, 243–4, 247; Law’s System compared to, 49, 60–61; low/stable inflation at time of, 134, 135; monetary policy’s role in run-up downplayed, 115–16, 115*, 115†; and quoting of Bagehot, 76; recovery of lost industrial output after, 124; regulatory interpretation of, 114–15, 117; and return of the state, 292–5, 297, 298; return to ‘yield-chasing’ after, 221–6, 230–31, 233–4, 237–8; the rich as chief beneficiaries of, 206–10; savings glut hypothesis, 115–16, 117, 126, 128–9, 132, 191, 252, 268–9; ‘second phase of global liquidity’ after, 253–9, 262–3; unwinding of carry trades during, 221, 227; warnings from BIS economists before, 113–14, 131–4, 135–9 see also Great Recession financial derivatives market, 225–6 financial engineering: buybacks, 53, 152, 163–6, 167, 169, 170–71, 183, 224; crowding out of real economy by, 158–9, 160, 166–71, 182–3, 185, 237; ‘funding gap’ as impetus, 164, 176–7, 291; merger ‘tsunami’ after 2008 crisis, 160–63, 161*, 168–70, 237, 298; ‘promoter’s profit’ concept, 158–9, 160, 161, 164; and ‘shareholder value’, 163–6, 167, 170–71; Truman Show as allegory for bubble economy, 185–7; use of leverage, 111, 116, 149, 155, 158–71, 204, 207, 223, 237, 291; zaitech in Japan, 106, 182, 185 financial repression: in China, 264–5, 265*, 266–81, 268*, 283, 286–9, 292; and inequality, 287–8; McKinnon coins term, 264; political aspects, 265, 265*, 286–9, 292; returns to West after 2008 crisis, 291–3; after Second World War, 290–91, 302 financial sector: bond markets as ‘broken (2014), 227; complex securitizations, 116, 117–18, 221, 227, 231; decades-long bull market from early 1980s, 203–4; economics as fundamentally monetary, 132, 138–9; Edmunds’ ‘New World Wealth Machine’, 181–2; expansion in 1920s USA, 203; finance as leading growth, 266; financial mania of 1860s, 72–4, 75–6; fixed-income bonds, 68–9, 193, 219, 222, 225, 226; foreign securities/loans, 66, 77–8, 91; investment trusts appear (1880s), 79; liquidity traps, 114; mighty borrowers within, 202; profits bubble in post-crisis USA, 183, 183†, 185, 211; robber baron era in USA, 156–9, 203; stability as destabilizing, 82, 143, 233, 263, 285; stock market bubble in post-crisis decade, 175–7, 176*; trust companies in US, 83–4, 84*; US bond market ‘flash crash’ (2014), 138; and volatility, 153, 228–30, 233, 234, 254, 304, 305; volatility as asset class, 229–30, 229*, 233, 234, 304, 305; ‘Volmageddon’ (5 February 2018), 229–30, 234 see also banking and entries for individual institutions/events financial system, international: Asian crisis, 114, 252, 278; Basel banking rules, 232; Borio on ‘persistent expansionary bias’, 262–3; complex mortgage securities, 116, 117–18; crash (12 March 2020), 304–6; ‘excess elasticity’ of, 137; global financial imbalances, 137, 138; Louvre Accord (1987), 105–6; stock market crash (October 1987), 106, 110–11, 229 financialization, 162–71, 182–3, 185, 203–8, 237 Fink, Larry, 209, 246 Finley, Sir Moses, Economy and Society in Ancient Greece (1981), 18* fire-fighting services, 154–5 First World War, 84, 85 Fisher, Irving: and debt-deflation, 98–9, 100, 119, 280; first to refer to ‘real’ interest rate, 88–9, 219*; founds Stable Money League (1921), 87, 96; and Gesell’s rusting money, 243, 246; on interest, 29–30, 82, 189, 189*, 201; losses in 1929 crash, 94; monetarist view of 1929 Crash, 98–9, 100, 101, 108; ‘money illusion’ concept, 87*; on nature’s production, 4–5; on negative interest, 246; The Theory of Interest, xxiv, xxv, xxvi*, 16, 173 Fisher, Peter, 194 Fisher, Richard, 164 Fitzgerald, F.

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

And as so often, authority, far from discouraging the bubble, actively inflated it. The US Federal Reserve’s policy of driving down interest rates to keep the stock market afloat and save Wall Street (rather than Main Street) after the dot-com bust was the single biggest cause of the housing bubble that followed. The Greenspan Put, they called it. But third, and crucially, there was active, official encouragement of irresponsible lending. American politicians not only allowed banks to lend this cheap money to people with no deposits and little or no capacity to repay; they not only encouraged it; they actively mandated it by law.

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‘Mahatma’ 178 Garzik, Jeff 312 Gas Research Institute 136 Gassendi, Pierre 12, 13 Gates, Bill 222 Gaua 81 Gazzaniga, Michael 144, 147 GCHQ 303 genes: background 59–61; function of 65; and the genome 62–4; and junk or surplus DNA 66–72; mutation 72–5; selfish gene 66, 68 Genghis Khan 87, 223 geology 17 George III 245 Georgia Inst. of Technology 272 German Society for Racial Hygiene 198, 202 Germany 12, 29, 101, 122, 138, 231, 243, 247, 251, 253, 318 Ghana 181, 229 Giaever, Ivar 273 Gilder, George 287 Gilfillan, Colum 127 Gladstone, William Ewart 246 Glaeser, Edward 92 Glasgow University 22, 25 Glass-Steagall Act 287 global warming 271–6 Glorious Revolution (England) 243 Gobi desert 92 Goddard, Robert 138 Godkin, Ed 250 Goethe, Charles 202 Goethe, Johann Wolfgang von 248 Goldberg, Jonah 252; Liberal Fascism 199, 251 Goldman Sachs 3 Goldsmith, Sir Edward 211 Goodenough, Oliver 36 Google 120, 130, 132, 188 Gore, A1205, 211, 273, 274 Gosling, Raymond 121 Gottlieb, Anthony 41 Gottlieb, Richard 11 Gould, Stephen Jay 38, 53, 69 government: commerce and freedom 243–4; counterrevolution of 247–50; definition 236; free trade and free thinking 244–6; as God 254–5; and the Levellers 241–2; liberal fascism 250–2; libertarian revival 252–3; prison system 237–8; and protection rackets 238–41; and the wild west 235–6 Grant, Madison 202; The Passing of the Great Race 200–1 Graur, Dan 71, 72 Gray, Asa 44; Descent of Man 44–5 Gray, Elisha 119 Great Depression 105, 125, 318 Great Recession (2008–09) 97, 297 Greece 259 Green, David 115 Green, Paul 226 Green Revolution 208, 210 Greenblatt, Stephen 9, 11n Greenhalgh, Susan 212; Just One Child 210–11 Greenspan Put 289 Gregory, Ryan 71 Gregory VII, Pope 239 Gresham’s Law 279 Guardian (newspaper) 53 Gulf War 298 Gutenberg, Johannes 220 Hadiths 262 Haeckel, Ernst 197, 198 Hahnemann, Samuel 271 Haig, David 57 Hailey, Malcolm, Lord 231 Hailo 109 Haiti 207 Hamel, Gary 224 Hamilton, Alexander 244 Hannan, Daniel 35, 242, 315 Hannauer, Nick 107 Hansen, Alvin 105 Hanson, Earl Parker, New Worlds Emerging 209 Harford, Tim, Adapt: Why Success Always Starts With Failure 127, 255 Harriman, E.H. 200 Harris, Judith Rich 155–6, 158–65, 169; The Nurture Assumption 160–1 Harris, Sam 147, 148, 149–50, 151, 152 Harvard Business Review 224 Harvard University 9, 28, 57, 155, 159, 300 Hayek, Friedrich 35, 102, 128, 133, 230, 232, 243; The Constitution of Liberty 300; The Road to Serfdom 253 Haynes, John Dylan 146–7 Hazlett, Tom 223 Heidegger, Martin 201 Helsinki 211, 212 Henrich, Joe 89 Henry II 34 Henry VII 240 Henry the Navigator, Prince 134 Heraclius 262 Heritage Foundation 241 Higgs, Robert 240 Hill, P.J. 235–6 Hines, Melissa 169 Hitler, Adolf 198, 201, 217, 251, 252, 253; Mein Kampf 252 Hobbes, Thomas 8, 12, 197–8, 243 Holdren, John 208 Holland 142 Holland, Tom, In the Shadow of the Sword 261–2 Holocaust 214 Hong Kong 31, 92, 97, 101, 190, 191, 233–4 Hood, Bruce 148; The Self Illusion 145 Horgan, John 60 Hortlund, Per 284 ‘How Aid Underwrites Repression in Ethiopia’ (2010) 232 Howard, John 273 Hu Yaobang 212 Human Genome Project 64 Human Rights Watch 232 Hume, David 20, 21–2, 40–1, 54, 276; Concerning Natural Religion 39–40; Natural History of Religion 257 Humphrey, Nick 144, 154 Hussein, Saddam 298 Hutcheson, Francis 22, 25 Hutchinson, Allan 33 Hutton, James 17 Huxley, Aldous, Brave New World 167 Huxley, Julian 205, 211 Hyderabad 181 Ibsen, Henrik 249 Iceland 32 Iliad 87 Immigration Act (US, 1924) 201 Incas 86, 259 India 34, 87, 108, 125, 177–8, 181, 183, 196, 204, 206, 213, 214, 258, 259 Industrial (R)evolution 63, 104, 108,109–10, 135, 220, 248, 254–5, 277 Infoseek (search engine) 120 Intel 223 Intergovernmental Panel on Climate Change (IPCC) 273–4 International Code of Conduct for Information Security 305 International Federation of Eugenics Organisations 202 International Monetary Fund (IMF) 286 International Telecommunications Union (ITU) 305 internet: balkanisation of the web 302–6; and bitcoin 308–12; and blockchains 306–9, 313–14; central committee of 305–6; complexity of 300–1; emergence of 299–300; individuals associated with 301–2; and politics 314–16 Internet Corporation for Assigned Names and Numbers (ICANN) 305–6 Iraq 32, 255 Ireland 213, 246 Irish Republican Army (IRA) 240 Islam 259, 260, 262–3 Islamabad 92 Islamic State 240 Israel, Paul 119 Italian city states 101 Italy 34, 247, 251 Ive, Sir Jonathan 319 Jablonka, Eva 56, 57 Jackson, Doug 309 Jacobs, Jane 92 Jagger, Bianca 211 Jainism 260 Japan, Japanese 32, 122, 125, 231, 232, 288 Jefferson, Thomas 15, 20, 114, 244 Jehovah 13, 276 Jerome, St 11 Jesus Christ 8, 9, 88, 257, 258, 263, 266 Jevons, William Stanley 63, 106 Jews 29, 142, 197, 202–3, 257 Jobs, Steve 119, 222 Johnson, Boris 166; The Churchill Factor: How One Man Made History 217 Johnson, Lyndon B. 206, 207, 289 Johnson, Steven Berlin 220; Where Good Ideas Come From: The Natural History of Innovation 127 Jones, Judge John 49, 50, 51 Jonson, Ben 15 J.P.

Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present
by Jeff Madrick
Published 11 Jun 2012

Debtors don’t pay back their loans because dollars are more valuable—they can buy more. Creditors take large losses. Greenspan always believed he could recharge the economy by cutting rates sharply. The financial markets had come to depend on this ever since his rescue in 1987, and it became known as the “Greenspan put”—a floor Greenspan would always place under securities prices. But now the lower rates were not working. As economist Mark Zandi said, Greenspan realized the only way out was to push interest rates even lower to ignite a housing boom. Perhaps he believed he could this time pull the plug just short of its becoming a housing bubble.

…

As noted, these cuts were not precipitated by Greenspan’s faith in the New Economy, as so many had assumed in retrospect. Now the stock market turned up strongly, led by a new round of speculation in the high-technology stocks, as it became clear Greenspan was determined to loosen monetary policy to avoid a credit crunch and recession. (It was another example of the so-called Greenspan put.) The Clinton economic boom continued, and stocks rose higher and higher. It was not the self-correcting powers of the markets but aggressive central bank intervention plus a new round of irrational speculation that provided a floor under the downward financial prices and the calamitous consequences of bad Wall Street decisions.

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.: budget of, 1.1, 2.1, 2.2, 2.3, 3.1, 3.2, 3.3, 3.4, 9.1, 14.1, 14.2, 19.1; see also deficits, budget; defense spending by, prl.1, 2.4, 3.5, 3.6, 8.1, 11.1, 11.2; economic regulation by, itr.1, itr.2, prl.1, prl.2, prl.3, 2.5, 2.6, 2.7, 2.8, 2.9, 2.10, 2.11, 2.12, 3.7, 5.1, 5.2, 14.3, 19.2; limited, ix–x, prl.1, 1.2, 2.13, 3.8, 7.1, 7.2, 7.3, 7.4, 7.5, 9.2, 9.3, 10.1, 11.3, 11.4, 11.5, 14.4; local and state, prl.1, prl.2, 2.14, 7.6; social programs of, itr.1, prl.1, prl.2, prl.3, prl.4, prl.5, 1.3, 2.15, 2.16, 2.17, 2.18, 2.19, 3.9, 3.10, 7.7, 7.8, 7.9, 7.10, 7.11, 10.2, 11.6; spending by, prl.1, 1.4, 2.20, 2.21, 2.22, 2.23, 2.24, 2.25, 3.11, 3.12, 3.13, 3.14, 7.12, 9.4, 9.5, 11.7, 14.5, 19.3 Government Accounting Office (GAO—called Government Accountability Office since 2004) government sponsored enterprises (GSEs), 18.1, 18.2, 18.3, 19.1 Gramm, Phil, 16.1, 17.1 Gramm, Wendy Gramm-Leach-Bliley Act (1999) Grasso, Richard Gray, Harry, 4.1, 5.1 Gray Memo Great Britain, 1.1, 2.1, 2.2, 2.3, 3.1, 4.1, 5.1, 6.1, 8.1, 11.1, 15.1, 15.2, 15.3, 15.4, 15.5, 15.6, 15.7, 19.1, 19.2, 19.3 Great Depression, itr.1, prl.1, 1.1, 1.2, 1.3, 2.1, 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 3.1, 3.2, 3.3, 6.1, 6.2, 7.1, 8.1, 8.2, 9.1, 11.1, 11.2, 12.1, 14.1, 15.1, 15.2, 18.1, 19.1, 19.2, 19.3, 19.4, 19.5 Great Inflation of 1973–74 Great Society, prl.1, 10.1 Greenberg, Alan “Ace,” 364 Greenberg, Hank, 19.1, 19.2 Greenhill, Robert, 4.1, 4.2, 16.1, 16.2, 16.3 greenmail, 4.1, 4.2, 13.1, 13.2 Greenspan, Alan, 6.1, 14.1, 14.2; background of, 1.1, 14.3; budget deficits policy of, 14.4, 14.5, 14.6, 14.7; in Bush administration, 14.8, 18.1; in Clinton administration, 13.1, 14.9, 14.10, 14.11, 15.1, 15.2, 17.1, 18.2; as consultant, 10.1, 14.12, 14.13; deregulation supported by, 14.14, 14.15, 14.16, 14.17, 14.18, 14.19, 14.20, 15.3, 15.4, 16.1, 17.2; derivatives policy of, 14.21, 14.22, 14.23, 14.24; economic policies of, 14.25, 14.26, 15.5, 15.6, 17.3, 17.4, 17.5; education of, 14.27, 14.28; as Federal Reserve chairman, 1.2, 3.1, 6.2, 12.1, 13.2, 13.3, 14.29, 14.30, 14.31, 15.7, 15.8, 15.9, 16.2, 16.3, 17.6, 17.7, 17.8, 17.9, 18.3, 19.1, 19.2, 19.3; in Ford administration, 3.2, 3.3, 14.32, 14.33; free market ideology of, 3.4, 5.1, 13.4, 14.34, 14.35, 14.36, 14.37, 14.38, 14.39, 14.40, 14.41, 15.10; hedge funds and policies of, 15.11, 15.12, 15.13, 15.14; housing bubble and policies of, 14.42, 18.4, 18.5, 19.4, 19.5, 19.6, 19.7; inflation and, 12.2, 14.43, 14.44, 14.45, 14.46, 14.47, 14.48, 14.49, 14.50, 14.51, 14.52, 15.15, 17.10; interest rates policy of, 6.3, 12.3, 13.5, 14.53, 14.54, 14.55, 14.56, 14.57, 14.58, 15.16, 15.17, 15.18, 15.19, 15.20, 15.21, 17.11, 18.6, 18.7, 18.8, 18.9, 18.10, 18.11, 18.12, 19.8, 19.9, 19.10, 19.11; Keating letter of, 14.59, 14.60, 14.61; memoirs of, 14.62, 14.63; in Reagan administration, 13.6, 14.64, 14.65, 14.66, 14.67; as Republican, 14.68, 14.69, 14.70, 14.71; reputation of, 14.72, 14.73, 14.74, 14.75; stock market and policies of, 14.76, 14.77, 14.78, 14.79, 14.80, 14.81, 14.82; tax policies of, 14.83, 14.84, 14.85; unemployment rate policy of, 14.86, 14.87, 14.88, 14.89, 14.90, 14.91, 14.92, 14.93, 14.94, 14.95; Volcker compared with, 14.96, 14.97, 14.98, 14.99, 14.100 “Greenspan put,” 244 Greider, William Gross Domestic Product (GDP), 2.1, 2.2, 2.3, 2.4, 3.1, 3.2, 3.3, 3.4, 3.5, 7.1, 9.1, 11.1, 11.2, 11.3, 11.4, 11.5, 14.1, 14.2, 14.3, 14.4, 17.1, 17.2, 19.1, 19.2, 19.3, 19.4 Grubman, Jack, 16.1, 16.2, 17.1, 17.2 Gulf + Western, 1.1, 8.1 Gulf Oil, 5.1, 13.1 Gutfreund, John, 15.1, 18.1, 18.2, 18.3 Haig, Alexander, 6.1, 6.2 Hamilton, Alexander Hansen, Alvin, 2.1, 3.1 Harris, Fried Frank Harris, Lou Harvard Business School, 4.1, 4.2, 12.1, 12.2, 12.3, 12.4, 12.5, 13.1, 15.1, 15.2, 16.1, 16.2, 16.3, 17.1 Hawkins, Augustus Hayden Stone Hayek, Friedrich von, 2.1, 2.2, 2.3, 2.4, 7.1 Hayes, Robert health care, prl.1, 2.1, 2.2, 2.3, 6.1, 8.1, 11.1, 16.1, 16.2, 19.1 hedge funds, xi, 14.1, 14.2, 14.3, 14.4, 15.1, 16.1, 16.2, 17.1, 17.2, 17.3, 18.1, 18.2, 19.1, 19.2, 19.3, 19.4, 19.5, 19.6; see also specific funds herd instinct, 15.1, 19.1 Hickman, W.

The Innovation Illusion: How So Little Is Created by So Many Working So Hard
by Fredrik Erixon and Bjorn Weigel
Published 3 Oct 2016

The world that these “men of system” modeled was too dependent on recent history and did not factor in the probability of a giant and systemic financial crisis, or other big events changing the direction of the economy. Such crises had not happened for a long time – and taking exactly that long view, most periods of low growth in the West’s past decades had been manageable hiccups. Nor, they thought, could crises be a consequence of their own actions – like ultrarapid money growth, “Greenspan Puts” (propping the securities market with liquidity in the event of crisis), and misconceived bank regulations – let alone the basic principle of their economic worldview: the almost unconditional trust in rationalism. They were, as Adam Smith put it when describing the flaw in the man of system, “apt to be very wise in [their] own conceit.”12 The globalist worldview, despite differences among believers, became defined by a machinelike expectation of economic behavior.

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Johnston) (i) globalist worldview (i), (ii) globalization attitudes to globalization survey (IMD Business School) (i) and bureaucracy (i), (ii), (iii), (iv) and business investment (i) and capitalism, decline of (i), (ii) and competition (i) and creative destruction (i) and diffusion (i), (ii) and entrepreneurship (i), (ii) and financial institutions (i) horizontal (i), (ii), (iii), (iv), (v) and innovation (i), (ii), (iii), (iv) and managerialism (i), (ii), (iii), (iv) and mergers and acquisitions (i) and planning (i) and productivity (i), (ii), (iii) and regulation (i) and specialization (i), (ii), (iii), (iv), (v), (vi), (vii) and Swedish economy (i) vertical (i), (ii), (iii), (iv), (v), (vi), (vii) see also corporate globalism; globalization (overview); multinational (global) companies globalization (overview) 1st face/phase (1945–1980s) (i), (ii), (iii) 2nd face/phase (1980s–) (i), (ii), (iii), (iv), (v), (vi), (vii) changing nature of (i) characteristics of multinationals (i), (ii) globalist worldview (i), (ii) “globalize or die” (i) impact on France (i) impact on Germany (i), (ii), (iii), (iv) impact on US and UK (i), (ii), (iii) markets and firm boundaries (i) scale to scope (i) specialization and sunk costs (i), (ii) unbundling of production: first unbundling (i); second unbundling (i), (ii), (iii), (iv) see also corporate globalism; globalization; multinational (global) companies GM (genetically modified) potato, and EU regulation (i) GMOs (genetically modified organisms), and EU regulation (i), (ii), (iii) “Goldilocks and the Three Bears” (story) (i), (ii) Goldilocks principle (i), (ii) Goldman Sachs (i), (ii) Golec, Joseph (i)n28 Google dual share structures (i) and European regulation (i) and globalization (i) Google Glass (i), (ii) and Motorola (i) Project Loon (i), (ii) Gordon, Robert (i), (ii) Gore-Coty, Pierre-Dimitri (i) Gou, Terry (i) governments see political world; politics Graetz, George (i) Grasso, Richard (i) gray capitalism capitalist ownership: case of Harley-Davidson Motor Company (HD) (i); decline/obituary of capitalist ownership (i); dispersed ownership (i); gray ownership (i), (ii), (iii), (iv), (v), (vi); severing gray capital–corporate ownership link (i) “complex by design” and principal–agent problem (i) crowding out of innovations (i) financial capitalism: financialization of real economy (i); intermediaries and asset managers (i), (ii), (iii), (iv), (v), (vi) pensions and retirement savings (i), (ii), (iii), (iv), (v), (vi), (vii) rentier capitalism (i), (ii), (iii), (iv) resource allocation according to rentier formula (i) rich people vs. capitalists (i), (ii) sovereign wealth funds (i), (ii) Graylin, Will Wang (i) Great Recession and aspirations (i) and asset management industry (i) and cash hoarding (corporate savings) (i) and continuing economic decline (i) and firm entry-and-exit rates (i) and global trade (i) and globalist worldview (i) and high-growth firms (i) and investment funds (i) and New Machine Age hype (i) and policy uncertainty (i) and rich people vs. capitalists (i) and stockholding periods (i) and unemployment (i) and US productivity (i) see also financial crisis (2007) Greece, left-wing populism (i) green building codes (US) (i) green/renewable energy and regulation in Europe (i), (ii) and sunk costs (i) Greenspan, Alan (i), (ii), (iii) Greenspan Puts (i) Grey (alias of Ursley Kempe) (i), (ii) gross domestic product see GDP (gross domestic product) Group of Seven (G7) countries, labor productivity (i), (ii) growth see economic growth; GDP (gross domestic product) guilds (i), (ii) see also occupational licenses Gulf states, and sovereign wealth funds (i) Gulfo, Joseph (i) Gyllenhammar, Pehr G.

The Lords of Easy Money: How the Federal Reserve Broke the American Economy
by Christopher Leonard
Published 11 Jan 2022

Powell’s language was colorless, but the traders on Wall Street heard his message clearly—Powell’s reversal had been total. The moment coined a term in the investing world: the Powell Pivot. This phrase was just another way to describe the safety net that Wall Street assumed the Fed would provide. They called it a “put,” as in a contract to buy a stock at a floor price if it ever sank too low. First there was the Greenspan Put. Then the Bernanke Put. Then the Yellen Put. Now the Powell Put. It had become a de facto policy, the Fed Put, that implied the Fed would create a floor to asset prices. By February 3, days after this announcement, the values of stocks and bonds were rising in tandem, a rare thing to see. It soon became clear, however, that simply stopping normalization would not be enough.

…

The terminology refers to a “put” contract, through which someone agrees to buy an asset at a certain price, even if the market price is lower. A put contract effectively puts a floor beneath that asset price for the contract holder. Investors believe there is a Fed Put based on their observation that the Fed steps in when markets crash and creates more money to allay the volatility. Also known as the Greenspan Put, the Bernanke Put, the Yellen Put, and the Powell Put. FISCAL POLICY: This is government policy that has anything to do with collecting taxes and spending state money (including borrowed state money). For the purposes of this book, fiscal policy refers to almost all economic policies passed by democratically controlled government bodies, such as state or federal legislatures, as opposed to monetary policy, which is controlled by the Federal Reserve.

Vulture Capitalism: Corporate Crimes, Backdoor Bailouts, and the Death of Freedom
by Grace Blakeley
Published 11 Mar 2024

After the 1987 US stock market crash, the Federal Reserve slashed interest rates and made billions of dollars worth of “repurchase agreements” with US investment banks.89 These “repos” were effectively short-term loans that allowed banks to buy up cheap assets after the crash—like a corporate landlord buying up cheap property in a declining area after a financial crisis. The most powerful and nimble investors made vast sums of money during the boom and were then insulated from the effects of the bust. It was smaller retail investors and overindebted homeowners who ended up paying the price. The Fed’s response to the crash was referred to as the “Greenspan put,” after its then-chairman, Alan Greenspan.90 A put option is a bit like an insurance policy—it’s a one-way bet in which the buyer has the right, but no obligation, to sell a security back to the owner at a particular price. Greenspan, darling of the neoliberal economists and sometimes referred to as the “rock star” of the Fed, was effectively providing a state-backed insurance policy to the big banks, telling them that even if they took huge risks during the upswing of the financial cycle, the state would always be there to bail them out when things got hard.91 This was merely the start in a long chain of “crisis responses” that laid the foundation for future crises.92 Investors quickly learned how to play the game Greenspan had set up for them.

…

With central banks pumping new money into the financial system through purchases of safe assets like government bonds, investors have been pushed toward investing in riskier assets, and the obvious result of this has been rising asset prices.94 Asset prices have risen faster than prices in the rest of the economy (including wages)—meaning the gap between the people who own all the stuff and everyone else has widened even further since 2008.95 All this new money was supposed to “trickle down” to the rest of the economy through investment undertaken by the rich. Unsurprisingly, this effect has been slow to materialize. In 1987, with the Greenspan put, the Fed’s mask slipped. Greenspan showed that the US state was willing to pull out all the stops to protect Wall Street, even while doing very little to support workers and small businesses. With the 2008 financial crisis, the mask came off completely. Central banks were repurposed to meet the needs of large financial institutions and big businesses, even as millions lost their jobs and were evicted from their homes.

The Age of Illusions: How America Squandered Its Cold War Victory
by Andrew J. Bacevich
Published 7 Jan 2020

What had worked in the West would surely work in the East and the South as well. Although in the near term the embrace of globalization might create winners and losers, losers would have both incentive and opportunity to retool and get with the program. Truth to tell, no real alternative existed. So, at least, august figures insisted. As Alan Greenspan put it in 2007, “The world is governed by market forces.” The former Federal Reserve chairman offered that blunt judgment without caveats or exceptions. It was, therefore, incumbent upon senior officials, whether elected or appointed, to recognize and defer to this immutable reality. Indeed, Greenspan deemed it “fortunate” that “policy decisions in the U.S. have been largely replaced by global market forces,” so much so that “national security aside, it hardly makes any difference” whom Americans installed in the White House.9 Yet the creation of such an open world, accelerating and intensifying the movement of goods, capital, technology, ideas, and people, meant more than simply greater material abundance.

Third World America: How Our Politicians Are Abandoning the Middle Class and Betraying the American Dream
by Arianna Huffington
Published 7 Sep 2010

Regulations are “very difficult to comply with,” and “so many of the laws” are “nonsensical,” in the words of Don Blankenship, the chief executive officer of Massey Energy, the company that owns the Upper Big Branch mine, which just happens to have a shocking history of safety violations.32 The Wall Street Journal cites the arguments of oil industry executives and regulators who claim “that offshore operations have become so complicated that regulators ultimately must rely on the oil companies and drilling contractors to proceed safely.”33 “There has been a very good record in deep water [drilling],” said Lars Herbst, head of the MMS’s Gulf of Mexico region, “up until the point of [the Deepwater Horizon] accident.”34 Other than that, Mrs. Lincoln, how did you enjoy the play? Similarly, the reason the financial industry can’t be regulated adequately is because, as Alan Greenspan put it during his 2010 testimony before the Financial Crisis Inquiry Commission, “the complexity is awesome,” and regulators “are reaching far beyond [their] capacities.”35 That is, of course, exactly the way Wall Street designed it. To the financial world, “awesome complexity” is a feature, not a bug.

What Went Wrong: How the 1% Hijacked the American Middle Class . . . And What Other Countries Got Right
by George R. Tyler
Published 15 Jul 2013

As University of Chicago economists Douglas W. Diamond and Raghuram G. Rajan explained in a May 2012 analysis, that step to protect banks created the famous “Greenspan Put,” a hallmark of the Reagan era. If sufficiently large, bankers making risky speculations that sour will be bailed out by taxpayers. It’s called corporate socialism.68 Handelsbatt reporter Olaf Storbeck in February 2011 explained the new banking industry incentive structure created by deregulation and the Greenspan Put: “State protection is also so attractive that banks have systematically attempted to reach the ‘too big to fail’ status—the implied government guarantees were a key engine for the many mergers and acquisitions in the industry since the 1990s.”69 The rest, as they say, is history.

Stolen: How to Save the World From Financialisation
by Grace Blakeley
Published 9 Sep 2019

Money, Financial Institutions and Macroeconomics, USA: Springer 36 See, e.g., Inham, G. (1984) Capitalism Divided: The City and Industry in British Social Development, London: Macmillan 37 This account draws on: Lapavitsas (2013); Hilferding, R. (1919) Finance Capital: A Study of the Latest Phase of Capitalist Development; Panitch and Gindin (2012); Pettifor (2017) 38 This account draws on: Epstein and Jayadev (2005); Epstein (2009); Miller, M., Weller, P. and Zhang, L. (2001) “Moral Hazard and the US Stock Market: Analysing the ‘Greenspan Put’”, Centre for the Study of Globalisation and Regionalisation Working Paper 83/01. https://warwick.ac.uk/fac/soc/pais/research/researchcentres/csgr/papers/workingpapers/2001/wp8301.pdf 39 This analysis draws on: Englen, E., Erturk, I., Froud, J., Johal, S., Leaver, A., Moran, M. and Williams, K. (2012) “Misrule of Experts?

The Age of Stagnation: Why Perpetual Growth Is Unattainable and the Global Economy Is in Peril
by Satyajit Das
Published 9 Feb 2016

Apologists for the new economic model argued that the experience of Japan confirmed the superiority of the more flexible, competitive, and dynamic market models of the US, and others like them, for delivering growth. The Great Moderation was really a Goldilocks economy, reliant on a massive expansion in debt and financial speculation, underwritten by the Greenspan Put. This referred to a practice originated by US Fed chairman Alan Greenspan, and adopted widely, whereby in a financial crisis central banks lowered interest rates sharply and flooded the system with money, to prevent asset prices from falling and to avert potential deterioration in economic activity.

Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State
by Paul Tucker
Published 21 Apr 2018

Moral Hazard from Insuring Liquidity and Macrostability People, businesses, and financial intermediaries plausibly take more risk than otherwise, including taking on too much debt, due to central banks’ role as the LOLR to the financial system and as the authority that seeks to smooth the economy’s ups and downs.24 While this has attracted attention since talk of the “Greenspan put” during the 1990s, it is not obvious that it should knock central banks out of contention for formal regulatory and supervisory responsibilities. After all, these various moral hazard risks are no smaller when a separate body is the regulator. Indeed, there is a case for allocating control of the regulatory mitigants to the generator of the monetary moral hazard problem.

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Whitford. Above Politics: Bureaucratic Discretion and Credible Commitment. New York: Cambridge University Press, 2016. Miller, Geoffrey P. “Independent Agencies.” Supreme Court Review (1986): 41–97. Miller, Marcus, P. Weller, and L. Zhang. “Moral Hazard and the US Stock Market: Analyzing the ‘Greenspan Put.’ ” Economic Journal 112, no. 478 (2002): C171–86. Moe, Terry M. “Political Institutions: The Neglected Side of the Story.” Special issue, Journal of Law, Economics, and Organisation 6 (1990): 213–54. ________. “Delegation, Control, and the Study of Bureaucracy.” In The Handbook of Organizational Economics, edited by Robert Gibbons and John Roberts.

The Meritocracy Trap: How America's Foundational Myth Feeds Inequality, Dismantles the Middle Class, and Devours the Elite
by Daniel Markovits
Published 14 Sep 2019

Garfinkel, “Financing Major Investments: Information About Capital Structure Decisions,” Review of Finance 18, no. 4 (July 2014): 1341–86. Prior eras of intensive financialization produced similar patterns, so that, for example, U.S. firms reinvested only 30 percent of their profits in 1929. See Fraser, Every Man a Speculator, 488. debt-financed middle-class consumption: This was the point of the famous “Greenspan put,” first issued in the late 1990s in the context of the dot-com bubble and then effectively renewed with respect to the housing bubble in the early 2000s and then again by the new Federal Reserve chair Ben Bernanke in the aftermath of the Great Recession. See Rajan, Fault Lines, 112–15. Even very conservative commentators object to this pattern, for example, calling it “bailout arbitrage,” which constituted “an implicit tax imposed by the predations of politically connected financial institutions.”

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but rather through debt: The debt invites a hidden form of redistribution that lurks in the background of American policy as a kind of safety net below the social safety net of the conventional welfare state. Personal bankruptcy protection for insolvent debtors—the middle-class version of the Greenspan put—amounts to an implicit tax on all lenders and borrowers used to establish a social safety net for those borrowers who cannot sustain their consumption, even through ready credit. And bankruptcies have famously skyrocketed in recent years, effectively increasing the implicit tax rate, although tightening bankruptcy laws increasingly withdraw even the failsafe net and reduced even this highly attenuated form of economic redistribution.

Zero-Sum Future: American Power in an Age of Anxiety
by Gideon Rachman
Published 1 Feb 2011

For Greenspan was not a mere technician or a number cruncher. He was a man of powerful libertarian and free-market convictions who both captured and molded the spirit of his age. As a young man, Greenspan had been captivated by the personality and ideas of Ayn Rand, a Russian exile, philosopher, and bestselling novelist who, as Greenspan puts it, “championed laissez-faire capitalism as the ideal form of social organization.”3 Debating with her, Greenspan later remembered, was “like starting a game of chess thinking I was good, and later finding myself in checkmate.”4 Rand was short, forceful, charismatic, and dominated many of her youthful disciples.

The Corruption of Capitalism: Why Rentiers Thrive and Work Does Not Pay
by Guy Standing
Published 13 Jul 2016

Besides QE, central banks have subsidised investors speculating in bonds and equities through assurances that they will act to buoy stock markets and keep interest rates low. This raises capital values and asset prices by reducing the risks of speculation. The most well-known instance is what has become known as the ‘Greenspan put’; Alan Greenspan, when Chairman of the US Federal Reserve, let it be understood that the Fed would cut interest rates to stop a stock market rout. Successive rate cuts duly propped up US stock markets during the 1990s and early 2000s. Some economists have even argued that central banks should buy shares in the open market to underpin ‘reasonable’ price-to-earnings ratios, as China’s did in 2015 by providing cash for a stock-buying fund.

Chaos Kings: How Wall Street Traders Make Billions in the New Age of Crisis
by Scott Patterson
Published 5 Jun 2023

Many investors had also developed an unswerving faith in the power of the Federal Reserve to protect them from big crashes. By lowering short-term interest rates when times were tough, the Fed made it easier for borrowers to get access to cheap loans, giving the economy a jolt. Under Alan Greenspan, that protective measure was known as the “Greenspan Put,” a reference to a put option that gains when a stock falls. Since Ben Bernanke was the new Fed chairman, it was now known as the “Bernanke Put.” The sentiment among pension funds and on the Street was: Who needs Universa when I’ve got the awesome power of the Federal Reserve at my back? Another roadblock was the prevailing belief on Wall Street that the market and the economy were in a long run of low volatility.

MegaThreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them
by Nouriel Roubini
Published 17 Oct 2022

A few years ago we had outstanding economists like Ben Bernanke and Janet Yellen heading the Federal Reserve, Mario Draghi at the European Central Bank, and Mark Carney at the Bank of England. They were central bankers with cachet and with advanced degrees in economics. Even so, they were stuck in the debt trap. After the Greenspan put we got the Bernanke put, the Yellen put, and now the Powell put. Tactics vary but all have the same bottom line: when debt and equity markets wobble, central banks will come to their rescue. If central bankers schooled in economics and boom-and-bust cycles are locked in a debt trap, it’s even harder to be sanguine without seasoned economists in command.

In FED We Trust: Ben Bernanke's War on the Great Panic
by David Wessel
Published 3 Aug 2009

Greenspan didn’t spend much time thinking about regulatory matters, and even less time encouraging new rules. He left that to others. But as Gramlich knew, it was nearly impossible to push a regulatory initiative through the Fed without Greenspan’s blessing — and Alan Greenspan gave such blessings sparingly. GREENSPAN PUT TOO MUCH FAITH IN MARKETS AND THE CAPACITY OF BIG-MONEY PLAYERS TO POLICE THE MARKETS IN THEIR OWN SELF-INTEREST Greenspan’s libertarian leanings were well known, and his skepticism about the capacity of government regulators openly expressed. He often referred to the ten years he spent as a director of J.

The Devil's Derivatives: The Untold Story of the Slick Traders and Hapless Regulators Who Almost Blew Up Wall Street . . . And Are Ready to Do It Again
by Nicholas Dunbar
Published 11 Jul 2011

Greenspan did not interfere with the signing of Basel I—after all, it would help U.S. banks that wanted to expand into foreign lending markets; but he steadily pulled back from his predecessor’s coplike approach to banks and instead made it clear that he believed in (and fostered) Wall Street innovation. If the 8 percent rule was an obstacle to Wall Street ambition, then Greenspan, like Ayn Rand cheering on the rugged entrepreneurs battling government interference in her novel Atlas Shrugged, was not going to stand in their way. As Greenspan put it in a February 1998 speech, “Many of these products, which would have been perceived as too risky for banks in earlier periods, are now judged to be safe owing to today’s more sophisticated risk measurement and containment systems. Both banking and regulation are continuously evolving disciplines, with the latter, of course, continuously adjusting to the former.”3 Speed Is Good In September 1998, in an auditorium at London’s Barbican Centre (better known for performances by the Royal Shakespeare Company and the London Symphony Orchestra), central bankers and regulators from around the world met to discuss modifying the Basel rules.4 In the decade since Volcker’s speed limits had become a global standard, much had changed in banking.

Austerity: The History of a Dangerous Idea
by Mark Blyth
Published 24 Apr 2013

One of America’s Great Depression–era monetary economists, Irving Fisher, analyzed how, much to his dismay, depressions do not in fact “right themselves” owing to a phenomenon called debt deflation.55 Simply put, as the economy deflates, debts increase as incomes shrink, making it harder to pay off debt the more the economy craters. This, in turn, causes consumption to shrink, which in the aggregate pulls the economy down further and makes the debt to be paid back all the greater. Fourth, just as it does not follow that governments should always intervene to stave off market adjustments, as the “Greenspan put” and Ireland’s bank rescue showed only too well, to argue that there should never be intervention presumes knowledge of the system—it will return to full employment if left alone—that Austrians themselves say is impossible to attain. The Austrian counterfactual, that in the absence of interventions market allocation will be optimal, can never be satisfied.

Unfinished Business
by Tamim Bayoumi

In addition, predictability became a cardinal virtue for monetary policymakers since this reduced financial market uncertainty. The possible impact of predictability in encouraging more risk-taking in the financial system was recognized but largely discounted. While there was some debate about the risks from the “Greenspan Put”, whereby the Fed’s prompt easing in response to negative news might encourage investors to think they would always be bailed out and hence start taking larger risks, such concerns about the incentives of investors were not analyzed in depth as they did not fit into the mental structure associated with macroeconomic models.

Boom and Bust: A Global History of Financial Bubbles
by William Quinn and John D. Turner
Published 5 Aug 2020

Money was relatively abundant during the 1990s, providing sufficient liquidity for the bubble to develop. Alan Greenspan’s decision to intervene after the 1987 stock market crash led many to believe that the Federal Reserve would respond to a price drop by cutting interest rates, thereby limiting the potential losses of investors. This became known as the ‘Greenspan put’ and acted as an incentive to take greater risks. In 1998, just as the bubble was developing, the Federal Reserve cut interest rates in anticipation of an economic downturn, further encouraging investors to reach for yield. The 1990s was also an era of increasing credit, with US household debt as a proportion of GDP rising from 60 per cent in 1990 to 70 per cent in 2000.43 As in the 1920s, the number of investors borrowing to buy shares rose particularly sharply.

Confidence Game: How a Hedge Fund Manager Called Wall Street's Bluff
by Christine S. Richard
Published 26 Apr 2010

In the 1990s, Brooksley Born, the head of the Commodity Futures Trading Commission (CFTC), suggested bringing the credit-default-swap (CDS) market under the control of the commission. The CFTC already oversaw markets for futures and options, including those written on commodities such as pork bellies and corn. But Wall Street lobbyists, with the ideological backing of Federal Reserve Chairman Alan Greenspan, put up resistance. The Commodity Futures Modernization Act of 2000—buried in an 11,000-page budget bill and never debated—was passed the night before Congress recessed for Christmas in December 2000. It exempted credit-default swaps from federal oversight and from state gambling laws. The CDS market had another near miss with regulation, also in 2000, when bond insurers sought permission to enter the market.

Hard Times: The Divisive Toll of the Economic Slump
by Tom Clark and Anthony Heath
Published 23 Jun 2014

This chapter attempts a cool appraisal of the average force with which the contemporary storm has blown. Anyone who has lent even half an ear to the news in the past five years cannot have failed to gather that this was no ordinary slump. This was the big one, or so they said – the ‘once in a century’ event, as Alan Greenspan put it in 2008.3 But the financial elite is interested in financial phenomena – share-price swings and overnight interbank rates – that are only of direct concern to itself. If we're talking people instead of percentages – and talking particularly about the majority of people who do not dabble in stocks or in interest-rate swaps – then is a purely financial crisis really such a big deal?

The Snowball: Warren Buffett and the Business of Life
by Alice Schroeder
Published 1 Sep 2008

Michael Lewis, “How the Eggheads Cracked.” 39. Roger Lowenstein, When Genius Failed. 40. Interview with Eric Rosenfeld. 41. The Federal Reserve’s instant and dramatic cut of interest rates gave rise to a concept called the “Greenspan Put,” the idea that the Federal Reserve would swamp the market with liquidity to bail out investors in a crisis. The Greenspan Put theoretically encourages people to worry less about risk. Greenspan denied there was a Greenspan Put. “It takes a good deal longer for the cycle to expand than for it to contract,” he said. “Therefore we are innocent.” (Reuters, October 1, 2007, quoting Greenspan speaking in London.)

The End of Wall Street
by Roger Lowenstein
Published 15 Jan 2010

With the turn toward market-driven economies in the 1980s, it was thought that markets had outgrown the ancient perils that arise from speculative frenzy, excessive borrowing, and greed—when in fact, Washington had been holding them in check. As financial exotica from ARMs to credit default swaps sprouted outside of the regulatory walls, Washington’s instinct was to let them bloom unrestricted. Regulators became so infatuated with the new finance as to believe that markets could fully police themselves. As Greenspan put it in 2002, “regulation is not only unnecessary in these [derivative] markets, it is potentially damaging.”30 Such enthusiasms infected the SEC in 2004, when the investment banks, led by Goldman and its then-CEO, Hank Paulson, pleaded for a new regime to govern capital requirements. Instead of focusing on leverage or capital as a means of assessing risk, the banks wanted to use a financial tool known as Value at Risk.

The Ascent of Money: A Financial History of the World
by Niall Ferguson
Published 13 Nov 2007

In November 2001, Alan Greenspan received a prestigious award, adding his name to a roll of honour that included Mikhail Gorbachev, Colin Powell and Nelson Mandela. The award was the Enron Prize for Distinguished Public Service. Greenspan had certainly earned his accolade. From February 1995 until June 1999 he had raised US interest rates only once. Traders had begun to speak of the ‘Greenspan put’ because having him at the Fed was like having a ‘put’ option on the stock market (an option but not an obligation to sell stocks at a good price in the future). Since the middle of January 2000, however, the US stock market had been plummeting, belatedly vindicating Greenspan’s earlier warnings about irrational exuberance.

The Invisible Hands: Top Hedge Fund Traders on Bubbles, Crashes, and Real Money
by Steven Drobny
Published 18 Mar 2010

But unless the U.S. really mismanages things from here, the dollar will remain the world’s number one reserve currency 5 and 10 years down the road. It just might not enjoy such a wide margin of dominance in the future. Is this current bailout going to create the mother of all moral hazards? Are the actions of the Bernanke Fed a highly levered version of the Greenspan put? The idea that central banks can fine-tune everything, that they have perfected their game such that risk premia should be much lower, has been proven false. Perhaps it was exactly the other way around: central banks lowered risk premia enough to spark a bubble in credit markets (see box). Paradox of Perfection I was talking with a hedge fund manager in Stockholm recently about this phenomenon and together we came up with the term “paradox of perfection,” meaning that as central bankers have perfected their game, paradoxically, that perfection has encouraged excessive risk taking and created other issues and imbalances elsewhere.

Makers and Takers: The Rise of Finance and the Fall of American Business
by Rana Foroohar
Published 16 May 2016

The crash of 1987, the S&L crisis of 1989, the Mexican peso collapse of 1994, the Asian financial crisis of 1997, the larger emerging-market crisis of 1998, and the dot-com boom and bust all happened on his watch. Each time the economy faltered as a result, Greenspan would lower rates to boost lending. (He used this tactic so reliably, in fact, that Wall Street bankers began calling it the “Greenspan put”—a caustic term that encapsulated their belief that the Fed would bail them out no matter what.) But these policies never changed the underlying problems in the economy. Rather, they served to cover up its deep structural cracks with a monetary blanket that made people feel more prosperous on paper, even as their jobs were being outsourced and their companies were being weakened by short-term market-driven decision making.

Last Man Standing: The Ascent of Jamie Dimon and JPMorgan Chase
by Duff McDonald
Published 5 Oct 2009

Although both Weill and Dimon will, to this day, swear by the efficiencies and profit-making potential of mega-institutions, the truth is that the majority of the big-time deals did not work. Perhaps the theory is sound, but the practice is another story. A sprawling conglomerate in the wrong hands (see Chuck Prince at Citigroup) is a disaster waiting to happen. Greenspan also later came to be known for the “Greenspan put.” (A put option gives the buyer the right, but not the obligation, to sell an asset at a predetermined “strike” price. If prices rise, you don’t sell. If they fall, you sell at the strike price and minimize your losses.) With aggressive interest rate cuts in the event of any kind of crisis—the Mexican crisis, the Asian currency crisis, the Long-Term Capital Management crisis, the bursting of the Internet bubble, or 9/11—his Federal Reserve created the impression that investors essentially had a “put option” on asset prices, and in the process arguably encouraged excessive risk-taking.

Seven Crashes: The Economic Crises That Shaped Globalization
by Harold James
Published 15 Jan 2023

The president of the central bank, an elderly Prussian bureaucrat called Rudolf Havenstein, boasted about his success in getting new printing plants (132 factories, as well as the bank’s own facilities), printing plate manufacturers (29), and paper factories (30) to meet the enormous demand for new money. He found more and more ingenious ways of stimulating bank lending to large businesses on ever more dubious securities. And he repeatedly explained that keeping the money presses rolling was a patriotic duty. There was in short what would now be called a “Havenstein put,” analogous to the “Greenspan put” of the early twenty-first century, in which the central bank would keep its interest rate at levels sufficiently low that German business could continue to expand. In the longer run, inflation destroyed German savings and made the economy of the unstable democracy of Weimar vulnerable to yet more shocks.

Principles: Life and Work
by Ray Dalio
Published 18 Sep 2017

When the next big one comes along in twenty-five years or so, or who knows when, it will probably come as a surprise and cause a lot of pain unless those principles are properly encoded in algorithms put into our computers. HELPING POLICYMAKERS Our economic and market principles were very different from most others, which accounted for our different results. I will explain these differences in Economic and Investment Principles and won’t digress into them now. As former Fed chairman Alan Greenspan put it, “The models failed at a time when we needed them most . . . JP Morgan had the American economy accelerating three days before [the Lehman Brothers’ collapse]—their model failed. The Fed model failed. The IMF model failed . . . So that left me asking myself: What happened?” Bill Dudley, president of the New York Fed, homed in on the problem when he said, “I think there’s a fundamental problem in terms of how macroeconomists look at the economic outlook, growth, and inflation . . .

More: The 10,000-Year Rise of the World Economy
by Philip Coggan
Published 6 Feb 2020

When markets wobbled, as they did on “Black Monday” in October 1987, central banks were quick to slash rates. They were trying to avoid the mistakes of the 1930s, when they were too slow to respond to financial distress. Over time, however, the markets seemed to rely on the Fed stepping in to rescue them. Faith in the Fed’s backing was known as the “Greenspan put”, after the then Fed chairman and an option strategy that protects investors from losses. Critics argued that the central banks were encouraging speculation. The problem was that raising interest rates to deter stock market speculation might inflict damage on the wider economy. And while central banks were supposed to ensure financial stability at the macro level, supervision of individual banks was not always in their hands; the Fed shared responsibility with an alphabet soup of other agencies.

Globalists: The End of Empire and the Birth of Neoliberalism
by Quinn Slobodian
Published 16 Mar 2018

At the World Economic Forum at Davos in 1995, an iconic location of the era, U.S. president Bill Clinton observed that “24-­hour markets can respond with blinding speed and sometimes ruthlessness.”1 Chancellor Gerhard Schröder referenced the “storms of globalization” as he announced a major reform of the welfare system in reunified Germany. The social market economy, he said, must modernize or it would “be modernized by the unchecked forces of the market.”2 Politics had moved to the passive tense. The only actor was the global economy. U.S. Federal Reserve chairman Alan Greenspan put the point most bluntly in 2007 when he declared, “It hardly makes any difference who ­will be the next president. The world is governed by market forces.”3 To its critics, this looked like a new empire with “globalization substituting for colonialism.”4 To its champions, 2 GLOBALISTS it was a world in which goods and capital, if not p ­ eople, flowed according to the logic of supply and demand, creating prosperity—or at least ­opportunity—­for all.5 This philosophy of the rule of market forces was labeled “neoliberalism” by its critics.

The Rise and Fall of the Neoliberal Order: America and the World in the Free Market Era
by Gary Gerstle
Published 14 Oct 2022

Underlying this confidence lurked a concern, though one that Greenspan was reluctant to verbalize: namely, that the easy money policies he had deployed in response to the 2001 high-tech crash were not producing the expected results. By 2005 or 2006, these policies should have stimulated robust economic growth, jobs, and wage increases. In each of these areas, however, achievements had lagged. Inflation should also have begun to creep up; to forestall this possibility, Greenspan put the Fed on a mild rate-raising course in 2004. Higher interest rates should have dampened consumption and home buying, but they did not. Long-term interest rates remained flat. Inflationary pressures were more or less flat as well. And levels of household and consumer debt continued to soar. Lawrence Summers, a prominent economist in the Clinton administration soon to play an important role in Barack Obama’s first presidential term, gave voice years later to what may have been on Greenspan’s mind in 2005 and 2006.

The Economists' Hour: How the False Prophets of Free Markets Fractured Our Society
by Binyamin Appelbaum
Published 4 Sep 2019

“There was an absolute rule at Townsend-Greenspan,” Lowell Wiltbank, a longtime employee, told the journalist Michael Hirsh. “No communication that came out of the firm should ever be interpreted to advocate any expansion of government interference in the economy. If we advocated anything in terms of government policy, it was deregulation.”63 In the late 1960s, Greenspan put the firm to work in the service of his politics. He volunteered as an adviser to Nixon’s 1968 presidential campaign, making his mark by using the Townsend-Greenspan computer to analyze polling data. He resisted taking a job with the new administration, although he served on the commission that recommended the end of the draft, and on a commission that recommended the end of interest rate regulation.

Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown
by Philip Mirowski
Published 24 Jun 2013

Bernanke assiduously deployed the Fed’s prodigious public relations arm and lobbying bench to proclaim that he had taken the extreme but necessary steps in order to keep the Great Recession from turning into another Great Depression; and yet there was very little that was “principled” about this gusher of federal loans and subsidies directed to bail out insolvent organizations headed by people with the right political connections. How was this so very different from the so-called Greenspan put, which had operated the same way with the lesser financial crises during his reign? Yet the orthodox economics profession (including nominally leftist critics, such as Paul Krugman and Joseph Stiglitz) fell right into line, praising the deft perspicuity of the Fed chairman in transforming the Fed into a beacon of financial rectitude and disaster deliverance.

Debunking Economics - Revised, Expanded and Integrated Edition: The Naked Emperor Dethroned?
by Steve Keen
Published 21 Sep 2011

But that is what we are doing now, by maintaining the debt and expecting that debtors should repay debts that should never have been issued in the first place. The consequences of our current behavior are twofold. First, the economy will be encumbered by a debt burden that should never have been generated, and will limp along for a decade or more, as has Japan. Secondly, the financial sector will continue to believe that ‘the Greenspan Put’ will absolve them from the consequences of irresponsible lending. A debt jubilee would address both those consequences. First, debt repayments that are hobbling consumer spending and industrial investment would be abolished; secondly, this would impose the pain of bankruptcy and capital loss on the financial sector – a pain it has avoided in general thus far through all the rescues since Greenspan’s first back in 1987.

Security Analysis
by Benjamin Graham and David Dodd
Published 1 Jan 1962

Amidst severe turbulence, the Fed frequently lowers interest rates to prop up securities prices and restore investor confidence. While the intention of Fed officials is to maintain orderly capital markets, some money managers view Fed intervention as a virtual license to speculate. Aggressive Fed tactics, sometimes referred to as the “Greenspan put” (now the “Bernanke put”), create a moral hazard that encourages speculation while prolonging overvaluation. So long as value investors aren’t lured into a false sense of security, so long as they can maintain a long-term horizon and ensure their staying power, market dislocations caused by Fed action (or investor anticipation of it) may ultimately be a source of opportunity.

The Quest: Energy, Security, and the Remaking of the Modern World
by Daniel Yergin
Published 14 May 2011

Today, on a fleet average basis, a new car is required to get 30.2 miles per gallon. Insulation and heating controls in a new house today are much more effective than in previous decades. Some of the gain also reflects structural changes in the U.S. economy. The economy has gotten “lighter,” as Alan Greenspan put it. In his words, “Today it takes a lot less physical material to produce a unit of output than it did in generations past.” Less of the economy—and thus of measurable GDP—is devoted to energy-intensive manufacturing, and those processes have gotten much more efficient in themselves. More of the economy is devoted to services and to information technologies and lighter industries, much of which did not even exist in the 1970s.

Stigum's Money Market, 4E
by Marcia Stigum and Anthony Crescenzi
Published 9 Feb 2007

One potential obstacle to growth of the GSEs is the emergence of concern voiced by members of Congress over the so-called implicit guarantee that the GSEs enjoy. Banking regulators such as the Federal Reserve and some members of Congress are concerned that the GSEs are borrowing too heavily and that the borrowing binge may one day put taxpayers at risk of having to bail them out. Former Federal Reserve Chairman Alan Greenspan put it this way in testimony that he gave before the Housing Banking Committee on April 6, 2005: The strong belief of investors in the implicit government backing of the GSEs does not by itself create safety and soundness problems for the GSEs, but it does create systemic risks for the U.S. financial system as the GSEs become very large.