market bubble

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

See speculation mortgage-backed securities (MBS) in relation to the Subprime Bubble, 176, 177–9, 185–6 in relation to the US housing boom of the 1920s, 117–18 Mosaic internet browser, 153 NASDAQ index, 156–7, 159–60 National Asset Management Agency, 180 National City Bank, 120, 126, 127 National Land Agency (Japan), 145 Netherlands in relation to the bubbles of 1720, 29–31, 36 Netscape, 153–5, 163, 164 new era narratives, 8, 218 in relation to the 1920s stock market bubble, 129–30 in relation to the Dot-Com Bubble, 163–4 New York Daily News, 123, 125 New York Investment News, 124 New York Times, The in relation to the 1920s stock market bubble, 122, 124–6, 129, in relation to the Chinese bubbles, 198 in relation to the Dot-Com Bubble, 154, 164 news media after the first emerging market bubble, 57 after the South Sea Bubble, 35–6 in relation to the 1920s stock market bubble, 122–3, 125–6 in relation to the Australian Land Boom, 81, 87–8 in relation to the British Bicycle Mania, 100–1, 103–5, 109 in relation to the Chinese bubbles, 198, 200, 203 in relation to the first emerging market bubble, 49–50 in relation to the Great Railway Mania, 63–5 in relation to the Mississippi Bubble, 20 in relation to the South Sea Bubble, 26–7 in relation to the Subprime Bubble, 185 role in past and future bubbles, 218–20 Northern Ireland housing bubble of the 2000s, 2, 175, 177, 182 Northern Rock, 178 Noyes, Alexander Dana, 122 Panic of 1907, the, 124 Peel, Robert, 65 penny-farthing, 99 People’s Daily, 200, 203 Plaza Accord, the, 136–7, 141 Ponzi, Charles, 119 Poyais.

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Lu and Lu, ‘Unveiling China’s stock market bubble’, 148. 52. Financial Times, 11 April 2015, p. 9; Financial Times, 2 July 2015, p. 10. 53. Washington Post, 12 May 2015, 8 July 2015. 54. Washington Post, 22 August 2015 55. Financial Times, 10 July 2015, p. 10. 56. Washington Post, 7 October 2015. 57. Financial Times, 10 July 2015, p. 11. 58. Lu and Lu, ‘Unveiling China’s stock market bubble’, 149. 59. Financial Times, 31 January 2007, p. 14; Financial Times, 7 June 2007, p. 14. 254 NOTES TO PAGES 205–16 60. Financial Times, 31 January 2007, p. 17. 61. Lu and Lu, ‘Unveiling China’s stock market bubble’, 152–3. 62. China Daily, 11 November 2015. 63.

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See American International Group (AIG) Shiller, Robert, 11, 157, 168, 170, 184, 218 short selling Chinese efforts to curtail, 202–4 definition of, 7 difficulty of, 221 in relation to the British Bicycle Mania, 109–10 in relation to the bubbles of 1720, 32 in relation to the Chinese bubbles, 208 in relation to the first emerging market bubble, 51–2 in relation to the Great Railway Mania, 70–1 in relation to the Subprime Bubble, 185–6 Smoot-Hawley tariff, the, 130 South Sea Company, the, 1, 23–6 South-East Asian booms of the 1990s, 14 spark description of the concept, 8–9 for the 1720 bubbles, 33 for the 1920s stock market bubble, 129–30 for the 2000s housing bubbles, 186–7 for the Australian Land Boom, 91 for the Bitcoin Bubble, 210 for the British Bicycle Mania, 99–9 for the Chinese bubbles, 196–8, 199–200 for the Dot-Com Bubble, 152–3, 163 for the first emerging market bubble, 53 for the Great Railway Mania, 71 for the Japanese bubbles, 145–6 predicting a, 213–14 speculation definition of, 7 in relation to the 1920s stock market bubble, 128–9 in relation to the Australian Land Boom, 90–1, 92–3 in relation to the British Bicycle Mania, 109–10 in relation to the bubbles of 1720, 32–4 in relation to the Chinese bubbles, 198, 207–8 in relation to the Dot-Com Bubble, 163 in relation to the Great Railway Mania, 69 in relation to the Japanese bubbles, 144–5 in relation to the Subprime Bubble, 183–4 in relation to the US housing boom of the 1920s, 118–19 state-owned enterprises, 195 287 INDEX stock market bubbles of the 1920s outside the United States, 126–7 Sumitomo Bank, 149 Table Talk, 87–8 technological innovation in modern financial markets, 214–15 in relation to the 1920s stock market bubble, 120, 129–30, 132 in relation to the British Bicycle Mania, 99–9, 113 in relation to the Dot-Com Bubble, 153, 163 in the fourth industrial revolution, 213 role in bubbles, 3, 8 unaccompanied by a bubble, 213 television rise of financial television in relation to the Dot-Com Bubble, 158 role in the Subprime Bubble, 184–5 Thai stock market bubble, 14 Time Warner, 157, 160 Times, The in relation to the first emerging market bubble, 40, 46, 48, 49–50, 51 in relation to the Great Railway Mania, 63, 64–5 tokkin funds, 140, 143–4 Tokyo City Bank, 148 TOPIX index, the, 141, 142 town- or village-owned enterprises, 195 transaction costs in relation to the 1920s stock market bubble, 128 in relation to the Dot-Com Bubble, 161 Tulipmania, 11, 13–14 underpricing in relation to the Dot-Com Bubble, 155 in relation to the Japanese bubbles, 142 unicorn bubble, the, 213 US housing boom of the 1920s, 117–19 useful bubbles, 3, 75, 213–14 the British Bicycle Mania as an example, 113–14 the Dot-Com Bubble as an example, 166–7 Visa, the, 22–3 volatility in relation to the 1920s stock market bubble, 123 Wall Street Crash, the, 123–5 cause of, 130 connection to the Great Depression, 130 Wall Street Journal, The, 122 War of the Spanish Succession, The, 17, 23 Wilks, John ‘Bubble’, 40, 46 Windhandel.

Panderer to Power
by Frederick Sheehan
Published 21 Oct 2009

No one wants the blame for the crash.”14 Two days later, the Bank for International Settlements (the central bankers’ central bank) warned about the “prevailing euphoria” in global credit markets.15 At the September 24, 1996, FOMC meeting, Greenspan said: “I recognize that there is a stock market bubble problem at this point. . . . We do have the possibility of raising major concerns by increasing margin requirements. I guarantee that if you want to get rid of the bubble, whatever it is, that will do it. My concern is that I am not sure what else it will do.”16 Of course he couldn’t know what else it would do, but he had identified a stock market bubble and that he could burst it. He would later deny that he could do either. Splicing his statements from the September 24, 1996, meeting to the December 5, 1996, speech, the drama of how the Fed would respond to a bubble was over.

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The act defined Neighborhood Reinvestment’s mission as “revitalizing older urban neighborhoods by mobilizing public, private and community resources at the neighborhood level.” 23 FOMC meeting transcript, July 2–3, 1996, p. 33. CHAIRMAN GREENSPAN. On that note, we all can go for coffee. Mr. Coffee escaped once again.26 Lindsey had summed up our future. His only error was timing. He did not—but who did?—predict that the stock market bubble would grow for 3½ more years. The stock market bubble forestalled a reckoning. That bubble concealed much that was wrong with a misaligned economy— specifically, the amount of borrowing required to boost the GDP. The gambler’s curse did not strike for another 10 years. First, the stock market cured all that plagued the “real” economy.

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This was his ever-so-muted warning that the stock market might be overpriced: “how do we know when irrational exuberance has unduly escalated asset values?” Yet, he claimed he had popped a bubble in 1994. “I think we partially broke the back of an emerging speculation in equities. We pricked that bubble [in the bond market] as well.”5 He offered to pop the bubble at the September 1996 FOMC meeting: “I recognize that there is a stock market bubble problem at this point. . . . We do have the possibility of raising major concerns by increasing margin requirements. I guarantee that if you want to get rid of the bubble, whatever it is, that will do it.” After his “irrational exuberance” speech, Greenspan gave a couple of warnings in early 1997.

Why Stock Markets Crash: Critical Events in Complex Financial Systems
by Didier Sornette
Published 18 Nov 2002

A plausible interpretation is that these 1.0 ’Argentina II’ Best fit Second best fit Third best fit Best fit antibubble 24000 Index 22000 20000 18000 16000 14000 ’Argentina II: Bubble’ ’Argentina II: Anti-bubble’ 0.8 Spectral Power 26000 0.6 0.4 0.2 12000 10000 92 92.2 92.4 Date 92.6 92.8 0 0 1 2 3 4 5 Frequency 6 7 Fig. 8.8. Left panel: The Argentinian stock market bubble and antibubble of 1992. See Table 8.1. Right panel: Only the best fit is used in the Lomb periodograms. Reproduced from [218]. 8 291 b ubb les and cras h e s i n e m e r g e n t m a r k e t s 1.0 26000 ’Argentina III’ ’Argentina III’ Best fit Second best fit 0.8 Spectral Power 24000 Index 22000 20000 18000 16000 0.4 0.2 14000 12000 0.6 93.6 93.7 93.8 93.9 Date 94 0 94.1 0 1 2 3 4 5 Frequency 6 7 8 Fig. 8.9. Left panel: The Argentinian stock market bubble ending in 1994. See Table 8.1 for the main parameter values of the fit.

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In Table 8.1, the main parameters of the fits are given as well as the beginning and ending dates of the bubble and the size of the 24000 1.0 ’Argentina IV’ ’Argentina IV’ Best fit 0.8 Spectral Power 26000 Index 22000 20000 18000 16000 0.4 0.2 14000 12000 0.6 95.5 96 96.5 Date 97 97.5 0 0 1 2 3 4 5 Frequency 6 7 Fig. 8.10. Left panel: The Argentinian stock market bubble ending in 1997. See Table 8.1 for the main parameter values of the fit. Right panel: Only the best fit is used in the Lomb periodogram. Reproduced from [218]. 8 292 chapter 8 1.0 14000 ’Brazil’ ’Brazil’ Best fit 0.8 Spectral Power Index 12000 10000 8000 0.6 0.4 0.2 6000 96.2 96.4 96.6 96.8 97 Date 0 97.2 97.4 0 1 2 3 4 5 Frequency 6 7 8 Fig. 8.11. Left panel: The Brazilian stock market bubble ending in 1997. See Table 8.1 for the main parameter values of the fit. Right panel: Only the best fit is used in the Lomb periodogram.

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Reproduced from [218]. 300 chapter 8 1.0 6.6 ’Indonesia I’ Best fit ’Indonesia I’ 0.8 Spectral Power Log(Index) 6.4 6.2 6.0 0.4 0.2 5.8 5.6 0.6 93.2 93.4 93.6 93.8 Date 94 0 94.2 0 1 2 3 4 5 Frequency 6 7 8 Fig. 8.26. Left panel: Indonesian stock market bubble ending in January 1994 with log-periodic power law fit with parameters m2 = 044 tc = 199409, and  = 156. Right panel: Lomb periodogram of the log-periodic oscillatory component of the price shown in the left panel. The abscissa is the log-frequency f defined as f = /2. Reproduced from [218]. 1.0 7.0 ’Indonesia II’ 0.8 Spectral Power Log(Index) 6.8 6.6 6.4 6.2 0.4 0.2 6.0 5.8 0.6 95.5 96 96.5 97 Date 97.5 98 0 0 1 2 3 4 5 Frequency 6 7 Fig. 8.27. Left panel: Indonesian stock market bubble ending in 1997 with logperiodic power law fit with parameters m2 = 023 tc = 199805, and  = 101.

Narrative Economics: How Stories Go Viral and Drive Major Economic Events
by Robert J. Shiller
Published 14 Oct 2019

We shall see some similarities between the narratives, both contagious in the context of perceived grand opportunities for investors, both intertwined with stories of investor greed and foolishness. Chapter 16 Stock Market Bubbles Narratives about stock market bubbles are stories about excitement and risk taking, and about relatively wealthy people who buy and sell securities. Like the real estate narratives discussed in chapter 15, narratives about stock market bubbles are driven by social comparison. Because they are fueled by psychology, and because stock prices are related to general confidence, these narratives also relate to the confidence and panic narratives presented in chapter 10.1 But the stock market is different from the economy as a whole.

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Louisville Courier-Journal, January 19, 1930, p. 87. 10. Terkel, 1970, p. 67. 11. Terkel, 1970, p. 376. 12. Terkel 1970, p. 164. 13. Kempton, 1998 [1955], prelude, location 118. 14. Jody Chudley, “JFK’s Father Used a Simple Trick to Spot Market Bubbles—and You Can Too,” Business Insider, October 12, 2017, http://www.businessinsider.com/how-to-spot-stock-market-bubbles-2017-10. 15. Baruch, 1957. 16. “Conservatives Begin to Realize Value of War Specialty Stocks,” Minneapolis Morning Tribune, July 26, 1915, p. 15. Chapter 17. Boycotts, Profiteers, and Evil Business 1. Charles C. Boycott, “The State of Ireland,” Times (London), October 18, 1880, 6. 2.

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31 5  The Laffer Curve and Rubik’s Cube Go Viral  41 6  Diverse Evidence on the Virality of Economic Narratives  53 Part II   The Foundations of Narrative Economics 7  Causality and Constellations  71 8  Seven Propositions of Narrative Economics  87 Part III   Perennial Economic Narratives 9  Recurrence and Mutation  107 10  Panic versus Confidence  114 11  Frugality versus Conspicuous Consumption  136 12  The Gold Standard versus Bimetallism  156 13  Labor-Saving Machines Replace Many Jobs  174 14  Automation and Artificial Intelligence Replace Almost All Jobs  196 15  Real Estate Booms and Busts  212 16  Stock Market Bubbles  228 17  Boycotts, Profiteers, and Evil Business  239 18  The Wage-Price Spiral and Evil Labor Unions  258 Part IV   Advancing Narrative Economics 19  Future Narratives, Future Research  271 Appendix: Applying Epidemic Models to Economic Narratives  289 Notes  301 References  325 Index  351 Figures 2.1 Articles Containing the Word Narrative as a Percentage of All Articles in Academic Disciplines   13 3.1 Epidemic Curve Example, Number of Newly Reported Ebola Cases in Lofa County, Liberia, by week, June 8–November 1, 2014   19 3.2 Percentage of All Articles by Year Using the Word Bimetallism or Bitcoin in News and Newspapers, 1850–2019   22 3.3 Frequency of Appearance of Four Economic Theories, 1940–2008   27 5.1 Frequency of Appearance of the Laffer Curve   43 10.1 Frequency of Appearance of Financial Panic, Business Confidence, and Consumer Confidence in Books, 1800–2008   116 10.2 Frequency of Appearance of Financial Panic Narratives within a Constellation of Panic Narratives through Time, 1800–2000   118 10.3 Frequency of Appearance of Suggestibility, Autosuggestion, and Crowd Psychology in Books, 1800–2008   120 10.4 Frequency of Appearance of Great Depression in Books, 1900–2008, and News, 1900–2019   134 11.1 Frequency of Appearance of American Dream in Books, 1800–2008, and News, 1800–2016   152 12.1 Frequency of Appearance of Gold Standard in Books, 1850–2008, and News, 1850–2019   159 13.1 Frequency of Appearance of Labor-Saving Machinery and Technological Unemployment in Books, 1800–2008   175 14.1 Percentage of Articles Containing the Words Automation and Artificial Intelligence in News and Newspapers, 1900–2019   197 15.1 “Housing Bubble” Google Search Queries, 2004–19   226 16.1 Frequency of Appearance of Stock Market Crash in Books, 1900–2008, and News, 1900–2019   232 17.1 Frequency of Appearance of Profiteer in Books, 1900–2008, and News, 1900–2019   243 18.1 Frequency of Appearance of Wage-Price Spiral and Cost-Push Inflation in Books, 1900–2008   259 A.1 Theoretical Epidemic Paths   291 Preface: What Is Narrative Economics?

The Wisdom of Crowds
by James Surowiecki
Published 1 Jan 2004

In the chapter about corporations, for instance, the tension is between a system in which only a few people exercise power and a system in which many have a voice. The chapter about markets starts with the question of whether markets can be collectively intelligent, and ends with a look at the dynamics of a stock-market bubble. There are many stories in this book of groups making bad decisions, as well as groups making good ones. Why? Well, one reason is that this is the way the world works. The wisdom of crowds has a far more important and beneficial impact on our everyday lives than we recognize, and its implications for the future are immense.

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While big groups are often good for solving certain kinds of problems, big groups can also be unmanageable and inefficient. Conversely, small groups have the virtue of being easy to run, but they risk having too little diversity of thought and too much consensus. Finally, Mackay was right about the extremes of collective behavior: there are times—think of a riot, or a stock-market bubble—when aggregating individual decisions produces a collective decision that is utterly irrational. The stories of these kinds of mistakes are negative proofs of this book’s argument, underscoring the importance to good decision making of diversity and independence by demonstrating what happens when they’re missing.

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Soon, people outside the sect began to seek Quakers as trading partners, suppliers, and sellers. And as Quaker prosperity grew, people drew a connection between that prosperity and the sect’s reputation for reliability and trustworthiness. Honesty, it started to seem, paid. In the wake of the orgy of corruption in which American businesses indulged during the stock-market bubble of the late 1990s, the idea that trustworthiness and good business might go together sounds woefully naïve. Certainly one interpretation of these scandals is that they were not aberrations but the inevitable by-product of a system that plays to people’s worst impulses: greed, cynicism, and selfishness.

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

Other telltale bubble indicators were visible: corporate leverage was extended, stock market bulls outnumbered bears by the highest ratio in decades, and margin debt was at an all-time high.15 In the words of one investment manager, this constituted ‘the broadest equity market bubble in history’.16 It was also the longest period of uninterrupted stock gains ever witnessed. By the tenth anniversary of Lehman’s bankruptcy, the US bull market had been running for 3,453 days.17 No wonder the bears headed for the woods. Yet the ascent of the stock market can’t simply be ascribed to irrational exuberance; shares still looked relatively good value when their yields were compared to the miserable coupons provided by US Treasuries.fn2 As long as long-term interest rates remained low, the great bull market had the wind behind it. Stock market bubbles often favour technology companies.

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Easy money fuelled a bubble in equities and property. The real estate value of the imperial palace in Tokyo was famously estimated to have surpassed that of the entire state of California. Towards the end of the decade, inflation started to tick upwards. In 1989, the new Governor of the Bank of Japan, Yasushi Mieno, decided to prick the stock market bubble. The discount rate was raised on three occasions that year, in May, October and on Christmas Day, four days before the Nikkei index reached its all-time high.6 As property prices continued to rise in early 1990, the BOJ continued to raise the discount rate, which reached 6 per cent in August.7 When it became apparent that Japan’s economy was slowing, the central bank abruptly reversed course: between July 1991 and September 1995, the official discount rate was cut from 6 to 0.5 per cent. 6.

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Both central banks directed their attention to price stability and initially ignored strong credit growth and the appearance of speculative bubbles. With domestic inflation under control, both the Fed and the BOJ tweaked domestic monetary policy for purposes of international co-operation. And towards the end of their respective booms, both central banks raised interest rates with the aim of bursting the stock market bubble. Like the Fed in the early 1930s, the BOJ allowed deflation to take hold after the Bubble Economy collapsed. Had the BOJ not attempted to burst the bubble, or had the central bank loosened policy more quickly after the bubble started to deflate, then the monetarists’ hypothesis, first elaborated by Fisher and disputed by Hayek – that price stability is a necessary prerequisite for economic and financial stability – might have been properly tested.

Lords of Finance: The Bankers Who Broke the World
by Liaquat Ahamed
Published 22 Jan 2009

Norman had acquired his reputation for economic and financial perspicacity because he had been so right on so many things. Ever since the end of the war, he had been a fervent opponent of exacting reparations from Germany. Throughout the 1920s, he had raised the alarm that the world was running short of gold reserves. From an early stage, he had warned about the dangers of the stock market bubble in the United States. But a few lonely voices insisted that it was he and the policies he espoused, especially his rigid, almost theological, belief in the benefits of the gold standard, that were to blame for the economic catastrophe that was overtaking the West. One of them was that of John Maynard Keynes.

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Stock market crashes and banking panics had always been closely linked in the pre-Fed world and many of the country’s past financial crises had emerged from Wall Street: 1837, 1857, 1896, and 1907. In his early days as a stockbroker, he himself had been a witness firsthand to the crash of 1896, and had been an active participant in restoring order after the panic of 1907. But as an experienced Wall Street hand, he was quite aware of how difficult it was to identify a market bubble—to distinguish between an advance in stock prices warranted by higher profits and a rise driven purely by market psychology. Almost by definition, there were always people who believed that the market has gone too high—the stock market depended on a diversity of opinion and for every buyer dreaming of riches in 1925, there was a seller who thought the whole thing had gone too far.

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Given so much uncertainty, he was convinced that the Federal Reserve should not try to make itself an arbiter of equity prices. Moreover, even if he was sure that the market had entered a speculative bubble, he was conscious that the Fed had many other objectives to worry about apart from the level of the market. He feared that if he added yet another goal—preventing stock market bubbles—to the list he would overload the system. Drawing a rather stretched analogy between the Federal Reserve and its various and conflicting objectives for the economy and a family burdened by many children, he ruminated, “Must we accept parenthood for every economic development in the country? That is a hard thing for us to do.

Trend Commandments: Trading for Exceptional Returns
by Michael W. Covel
Published 14 Jun 2011

If the market advances from a low point to any significant degree upward, buy and hold feels comfortable again. It can feel like market bubbles are a thing of the past—especially when so many talking heads are preaching recovery. Buy and Hope 153 No one knows if there is a current bubble in stocks, but it is amazing that some people think they know. I had a conversation with a friend recently. He mentioned that real estate in Southern California was stabilizing (forget that debate for a moment), and then the conversation of bubbles came up. He quickly announced that we were not in a stock market bubble. I was amazed at his confidence. Has there ever been a time when the majority knew they were in the middle of a bubble?

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Fed Funds rate 4.75 percent on November 17, 1998. Fed Funds rate 6.50 percent on May 16, 2000. Stock market bubble popped March 2000. The Fed then lowers 13 times. Fed Funds rate 3.00 percent on September 17, 2001. Fed Funds rate 1.25 percent on November 6, 2002. Stock market takes off. Real estate takes back off. Fed Funds rate 1.00 percent on June 25, 2003. P a r l i a m e n t o f W h o re s 183 The Fed then raises 17 times. Fed Funds rate 5.25 percent on August 17, 2007. The Fed then lowers 10 times. Stock market bubble popped October 2008. Fed Funds rate 0 percent on December 16, 2008. Stock market takes off.

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In any event, it is my job to not only defend capital, but to achieve it is going.6 returns despite the recklessness that policy makers choose to pursue.”5 S y s t e m a t i c Tre n d F o l l o w i n g 43 Trend traders use an entirely different type of analysis not based on traditional reasoning. Trend followers do not have Hollywood narratives to explain market bubbles on top of bubbles. A trend follower does not have to know any of the things Hussman laments not knowing. Buy things that have gone up on the theory that they will continue to go up; short things that have gone down on the theory that they will continue to go down.7 Empty your mind. Be formless, shapeless, like water.

Market Sense and Nonsense
by Jack D. Schwager
Published 5 Oct 2012

Markets do not accurately discount all known fundamentals, but rather they overdiscount or underdiscount this information, depending on the market’s emotional environment, and indeed this is one of the sources of investing or trading opportunities. A much more realistic model of how markets actually work is that prices are determined by a combination of fundamentals and emotions. The same exact set of fundamentals can lead to different prices given different emotional environments. The long history of market bubbles and crashes provides overwhelming empirical evidence that the “madness of crowds”14 can take market prices far beyond any rational level based on value and fundamentals and that market panics can result in precipitous price declines completely removed from any contemporaneous changes in fundamentals.

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The difficulty in gaining an edge in the markets is not because prices instantaneously discount all known information (although they sometimes do), but rather because the impact of emotion on prices varies greatly and is nearly impossible to gauge. Sometimes emotions will cause prices to wildly overshoot any reasonable definition of fair value—we call these periods market bubbles. At other times, emotions will cause prices to plunge far below any reasonable definition of fair value—we call these periods market panics. Finally, in perhaps the majority of the time, emotions will exert a limited distortive impact on prices—market environments in which the efficient market hypothesis provides a reasonable approximation.

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Markets are traded by people, not robots, and people often react on emotion more than on information.17 The influence of emotion can cause irrational behavior and result in prices being much too high or low vis-à-vis an objective assessment of the fundamentals. 3. The arrival of new information is random. ASSUME TRUE 4. Changes in prices depend on new information. FALSE! Price moves often lag the information. Price moves often occur in the absence of new information (e.g., market bubbles and crashes where momentum feeds on itself). 5. Therefore you can’t beat the market. FALSE! Prices can be significantly out of line with reasonable valuations. Prices don’t move in tandem with information. Some people are more skilled in interpreting information. Why the Efficient Market Hypothesis Is Destined for the Dustbin of Economic Theory Supporters of the efficient market hypothesis are reluctant to give up the theory, despite mounting contradictory evidence, because it provides the foundation for a broad range of critical financial applications, including risk assessment, optimal portfolio allocation, and option pricing.

Trend Following: How Great Traders Make Millions in Up or Down Markets
by Michael W. Covel
Published 19 Mar 2007

Part II 74 78 85 90 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 3 Performance Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Absolute Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 Fear of Volatility and Confusion with Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Drawdowns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 Correlation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 Zero Sum Nature of the Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 George Soros and Zero Sum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 4 Big Events, Crashes, and Panics . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 Event #1: 2008 Stock Market Bubble and Crash . . . . . . . . . . . . . . . . . . . . . . 126 Day-by-Day Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 Event #2: 2000–2002 Stock Market Bubble . . . . . . . . . . . . . . . . . . . . . . . . . . 138 Event #3: Long-Term Capital Management Collapse . . . . . . . . . . . . . . . . . . . 151 Event #4: Asian Contagion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 Event #5: Barings Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 Event #6: Metallgesellschaft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 Final Thoughts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175 The Always “New” Coming Storm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178 5 Baseball: Thinking Outside the Batter’s Box . . . . . . . . . . . . . . . . . . . . 181 The Home Run . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182 Moneyball and Billy Beane . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185 John W.

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Since trend following has nothing to do with short-term trading, cutting edge technologies, or Wall Street Holy Grails, its appeal is always negligible during market bubbles. It’s not sexy. If investors can jump on the bandwagon of practically any “long only” mutual or hedge fund manager or turn a profit trading themselves by simply buying Internet, energy, or real estate stocks and holding on to them, what need would there ever be to adopt a strategy such as trend following? However, if we look at how much money trend followers have made since assorted stock market bubbles have popped, trend following becomes far more relevant to the bottom line. The following chart (Chart 1.1) shows a hypothetical index of three longtime trend following firms compared against the S&P stock index.

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The performance histories of trend followers during the 2008 market crash, 2000–2002 stock market bubble, the 1998 LongTerm Capital Management (LTCM) crisis, the Asian contagion, the Barings Bank bust in 1995, and the German firm Metallgesellschaft’s collapse in 1993, answer that all important question: “Who won?” “Have you heard any rumors?” Killian, perplexed, said no. “I think we’re bust.” “Is this a crank call?” Killian asked. “There’s a really ugly story coming out that perhaps Nick Leeson has taken the company down.”9 126 Trend Following (Updated Edition): Learn to Make Millions in Up or Down Markets Event #1: 2008 Stock Market Bubble and Crash One reason for this paucity of early information is suggested by the following part of the term trend following.

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

The Dutch Republic prevailed over the Habsburg Empire because having the world’s first modern stock market was financially preferable to having the world’s biggest silver mine. The problems of the French monarchy could not be resolved without a revolution because a convicted Scots murderer had wrecked the French financial system by unleashing the first stock market bubble and bust. It was Nathan Rothschild as much as the Duke of Wellington who defeated Napoleon at Waterloo. It was financial folly, a self-destructive cycle of defaults and devaluations, that turned Argentina from the world’s sixth-richest country in the 1880s into the inflation-ridden basket case of the 1980s.

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Chapter 4 tells the story of insurance; Chapter 5 the real estate market; and Chapter 6 the rise, fall and rise of international finance. Each chapter addresses a key historical question. When did money stop being metal and mutate into paper, before vanishing altogether? Is it true that, by setting long-term interest rates, the bond market rules the world? What is the role played by central banks in stock market bubbles and busts? Why is insurance not necessarily the best way to protect yourself from risk? Do people exaggerate the benefits of investing in real estate? And is the economic inter-dependence of China and America the key to global financial stability, or a mere chimera? In trying to cover the history of finance from ancient Mesopotamia to modern microfinance, I have set myself an impossible task, no doubt.

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Distress: The insiders discern that expected profits cannot possibly justify the now exorbitant price of the shares and begin to take profits by selling. 5. Revulsion or discredit: As share prices fall, the outsiders all stampede for the exits, causing the bubble to burst altogether.3 Stock market bubbles have three other recurrent features. The first is the role of what is sometimes referred to as asymmetric information. Insiders - those concerned with the management of bubble companies - know much more than the outsiders, whom the insiders want to part from their money. Such asymmetries always exist in business, of course, but in a bubble the insiders exploit them fraudulently.4 The second theme is the role of cross-border capital flows.

A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation
by Richard Bookstaber
Published 5 Apr 2007

Kennedy in 1963 or the bombing of Pearl Harbor in 1941. Given the scope of the tumult, the market reactions to each event amounted to little more than a hiccup. There is another troublesome facet to our modern market crises: They keep getting worse. Two of the great market bubbles of the past century occurred in the last two decades. First, the Japanese stock market bubble, in which the Nikkei index tripled in value from 1986 through early 1990 and then nearly halved in value during the next nine months. The second was our own Internet bubble that witnessed the NASDAQ rise fourfold in a little more than a year and then decline by a similar amount the following year, ultimately cascading some 75 percent.

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In an age in which people are willing to invest money in virtual stocks, where by definition there are no prospects of earnings and where price appreciation is obtained through nothing short of an unsustainable bubble, it is not too hard to see how a real dot-com, with real prospects, no matter how dim, could attract investors. Market bubbles have been explained by the tendency of investors to follow trends and by the dynamics of crowd psychology—the need for people to be part of a successful herd. But neither trend-following strategies nor irrational crowd behavior is necessary to create market bubbles. Even if we assume as a starting point that the stock market is a random walk and 168 ccc_demon_165-206_ch09.qxd 7/13/07 2:44 PM Page 169 T H E B R AV E N E W W O R L D OF HEDGE FUNDS is governed by rational behavior, and even if we assert at the outset that all trades reflect the full consideration of the most up-to-date information, merely the fact that there are winners and losers will lead to booms and busts that have little to do with the rational application of information.1 The simplest market cycle is based on two psychological characteristics of investors.

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If it is Internet stocks in the late 1990s, the pundits point out that the information age is based on a new paradigm of value that is not well captured by traditional methods of accounting and the related modes of fundamental analysis. What has really changed is not the basic information—a P/E ratio is a P/E ratio—but the implications derived from it. Taken in its most extreme form, when there is a story that can afford unbridled optimism and when the optimism is fueled by levered exposures, a market bubble is born. In the case of the Internet bubble, the cycle had an accomplice in the form of a restricted supply of stock, or float. The scarcity of Internet shares was such that the market impact of each buyer contributed more than usual toward inflating the bubble. The float of a stock is the number of shares actually in the market and available for trading.

The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street
by Justin Fox
Published 29 May 2009

And since a mid-1970s stint as chairman of Gerald Ford’s Council of Economic Advisers, he had become adept at sensing the winds of political Washington. Put all that together, and what emerged in the late 1990s was the world’s most prominent advocate for the idea that financial markets got things right. Greenspan was willing to accept that stock market bubbles could happen, but he also thought deregulation, globalization, and technological innovation were bringing about advances in economic productivity that the stock market might be sniffing out before the government’s economists had. After his brief dalliance with “irrational exuberance,” Greenspan went on to cite this putative productivity boom repeatedly in his speeches and congressional testimony.

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Economic data later showed that there was a sustained boom in labor productivity (that is, workers produced more per hour worked) beginning in 1995. In the decade following Shiller’s 1996 forecast of stock market returns of “just about nothing,” actual returns were slightly under historical averages but decidedly positive.16 FORECASTING THE MARKET IS HARD, and stock market bubbles tend to have some basis in economic reality. But that doesn’t mean they aren’t bubbles, and can’t cause damage when they burst, which was really all that Shiller was trying to say. Orthodox finance scholars often seemed to bend over backward to miss this point. In 1991, professor and money manager Richard Roll—whose research in the 1980s had backed up Shiller’s claim that markets were excessively volatile—followed up a Shiller presentation on market swings with a response that is still cited by efficient market stalwarts: I really wish Bob were right about markets being inefficient.

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/Bad news, when the markets are on fire,/Gonna make me some money, can’t call me a liar/Sweet Emotion/Sweet Emotion.) After all the singing was done, the two knocked each other out. “With no clear winner tonight, the debate rages on,” the fight announcer declared.1 Yes, even after the deflating of the 1990s stock market bubble, even in the face of reams of new evidence and theory on the craziness of financial markets, students at Chicago still saw the debate over market rationality as a stalemate. On the other hand, at least they knew there was a debate. And they could take classes with Dick Thaler. BY THE TIME THALER MOVED to Chicago from Cornell in 1995, he was well known among economists.

Stocks for the Long Run, 4th Edition: The Definitive Guide to Financial Market Returns & Long Term Investment Strategies
by Jeremy J. Siegel
Published 18 Dec 2007

Capital 137 Conclusion 138 CONTENTS CONTENTS ix Chapter 9 Outperforming the Market: The Importance of Size, Dividend Yields, and Price-to-Earnings Ratios 139 Stocks That Outperform the Market 139 Small- and Large-Cap Stocks 141 Trends in Small-Cap Stock Returns 142 Valuation 144 Value Stocks Offer Higher Returns Than Growth Stocks 144 Dividend Yields 145 Other Dividend Yield Strategies 147 Price-to-Earnings (P-E) Ratios 149 Price-to-Book Ratios 150 Combining Size and Valuation Criteria 152 Initial Public Offerings: The Disappointing Overall Returns on New Small-Cap Growth Companies 154 The Nature of Growth and Value Stocks 157 Explanations of Size and Valuation Effects 157 The Noisy Market Hypothesis 158 Conclusion 159 Chapter 10 Global Investing and the Rise of China, India, and the Emerging Markets 161 The World’s Population, Production, and Equity Capital 162 Cycles in Foreign Markets 164 The Japanese Market Bubble 165 The Emerging Market Bubble 166 The New Millennium and the Technology Bubble 167 Diversification in World Markets 168 Principles of Diversification 168 “Efficient” Portfolios: Formal Analysis 168 Should You Hedge Foreign Exchange Risk? 173 Sector Diversification 173 Private and Public Capital 177 x The World in 2050 178 Conclusion 182 Appendix: The Largest Non-U.S.

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M., 295n Gazprom, 177, 182–183 General Electric, 47, 54, 56i, 57, 89, 176i, 177 in DJIA, 38, 39i, 48 General Foods, 60i, 62 General Motors, 40, 56i, 58, 64, 149n, 183 The General Theory (Keynes), 287, 364 Generally accepted accounting principles (GAAP), 103 Genstar, 63 Geometric return, 22 George, Thomas J., 302n Gerard, Harold B., 324n Gervais, Simon, 326n Glassman, James, 88, 147 GlaxoSmithKline, 177 Glickstein, David, 290n Global Crossing, 64 Global Industrial Classification Standard (GICS), 52–53 372 Global investing, 161–184 cycles in foreign markets and, 164–167, 164i diversification in world markets and (see Diversification in world markets) emerging market bubble and, 166–167 future of, 178–182 Japanese market bubble and, 165 largest non-U.S.-based companies and, 182–184 population, production, and equity capital and, 162, 162i, 163i, 164 technology bubble and, 167 Global Marine, 63 Global stocks, 18–20, 19i Global Wealth Allocation, 356 Globex, 258–260 Goethe, Johann Wolfgang, 37q Goetzmann, William, 12n, 18n Gold: as backing for U.S. currency, 193–194 price of, 10 Gold standard: adherence to, 191 end of, 9–10, 10i, 187–189, 192–193 “Good Beta, Bad Beta” (Campbell), 158 Goodyear, 64 Google, 176i, 355 Gordon, William, 295 Government bonds, interest rate on, above dividend yield on common stocks, 95–97 Graham, Benjamin, 77q, 82–83, 95q, 100, 139q, 141, 145n, 150, 152, 289q, 304, 334, 341q Grant, Linda, 359n Grantham, Jeremy, 90 Great Britain, end of gold standard in, 192 Great Crash (see Stock market crash of 1929) Index Great Depression: interest rates during, 8 investors’ reaction to, 16 postcrash view of stock returns and, 83–85 Greenspan, Alan, 87, 113, 246 Grinblatt, Mark, 302n Gross, Bill, 89–90 Gross domestic product (GDP): market value relative to, 119–120, 119i, 120i world, 162, 163i, 164 Gross, Leroy, 329 Growth stocks: nature of, 157 value stocks versus, 144–145 Gruber, Martin J., 348 Gulf of Tonkin incident, 233 Gulf Oil, 55 Gulf War, 85, 233–234 H.

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TABLE 10–1 Compound Annual Dollar Returns in World Stock Markets, 1970 through December 2006 (Standard Deviations in Parentheses) Country or Region World* EAFE† USA Europe Japan 19702006 19701979 19801989 19901999 20002006 10.81% 6.96% 19.92% 11.96% 4.65% (17.07) (18.09) (14.59) (13.94) (20.76) 11.57% 10.09% 22.77% 7.33% 7.08% (21.93) (22.77) (23.28) (16.93) (23.85) 10.84% 4.61% 17.13% 19.01% 2.45% (17.10) (19.01) (12.52) (14.39) (18.35) 12.27% 8.57% 18.49% 14.50% 7.34% (20.95) (20.97) (25.89) (12.71) (24.33) 11.47% 17.37% 28.66% -0.69% 4.28% (34.69) (45.41) (28.57) (28.90) (25.71) *World = Morgan Stanley Capital International (MSCI) Value-Weighted World Index. †EAFE is the MSCI index for Europe, Australasia, and the Far East. CHAPTER 10 Global Investing and the Rise of China, India, and the Emerging Markets 165 These differences in returns emphasize the importance of maintaining a well-diversified world portfolio. The Japanese Market Bubble The 1980 bull market in Japan stands as one of the most remarkable bubbles in world stock market history. In the 1970s and 1980s, Japanese stock returns averaged more than 10 percentage points per year above U.S. returns and surpassed those from every other country. The bull market in Japan was so dramatic that by the end of 1989, for the first time since the early 1900s, the market value of the American stock market was no longer the world’s largest.

The Long Good Buy: Analysing Cycles in Markets
by Peter Oppenheimer
Published 3 May 2020

US 10y BY (10-year rolling annualised) = ex post ERP SOURCE: Goldman Sachs Global Investment Research. Whatever the risk premium is, however, it does seem to vary over different periods, the duration of which seems to be largely dependent on the valuation at the starting point. The annualised excess returns in equities compared with government bonds were very negative after the equity market bubble burst in the late 1920s, but they were extraordinarily high in the post-war years of the 1950s and 1960s (coming from low valuations post-war and supported by strong economic growth), as exhibit 2.6 illustrates. The technology bubble of the 1990s created a valuation-led collapse in stock prices, which resulted in a negative ex post (or achieved) ERP for several years.

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Thirteen major large cap stocks all increased in value by over 1,000% and another seven large cap stocks each rose by over 900%.11 The Nasdaq index increased fivefold between 1995 and 2000, eventually reaching a P/E valuation of 200 times, significantly higher than even the 70 times P/E ratio of the Nikkei during the Japanese stock market bubble (Hayes 2019). By April 2000, just 1 month after peaking, the Nasdaq had lost 34% of its value, and over the next year and a half hundreds of companies saw the value of their stock drop by 80% or more. Priceline, for example, fell 94%. Eventually, by the time it troughed in October 2009, the Nasdaq itself had fallen nearly 80% (see McCullough 2018).

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The year in the markets; 1999: Extraordinary winners and more losers. New York Times [online]. Available at https://www.nytimes.com/2000/01/03/business/the-year-in-the-markets-1999-extraordinary-winners-and-more-losers.html 12 See Sorescu, A., Sorescu, S. M., Armstrong, W. J., and Devoldere, B. (2018). Two centuries of innovations and stock market bubbles. Marketing Science Journal, 37(4), 507–684. 13 See Frehen, R. G. P., Goetzmann, W. N., and Rouwenhorst, K. G. (2013). New evidence on the first financial bubble. Journal of Financial Economics, 108(3), 585–607. 14 Odlyzko, A. (2010). Collective hallucinations and inefficient markets: The British railway mania of the 1840s.

The Misbehavior of Markets: A Fractal View of Financial Turbulence
by Benoit Mandelbrot and Richard L. Hudson
Published 7 Mar 2006

The Persistence of Error PART TWO - The New Way CHAPTER VI - Turbulent Markets: A Preview Turbulent Trading Looney ’Toons for Brown-Bachelier Preview of More Close-Fitting Cartoons CHAPTER VII - Studies in Roughness: A Fractal Primer The Rules of Roughness A Dimension to Measure Roughness Pictorial Essay: A Fractal Gallery CHAPTER VIII - The Mystery of Cotton Clue No. 1: A Power Law Out of the Blue Clue No. 2: Early Power Laws in Economics Clue No. 3: The Laws of Exceptional Chance The Cotton Case: Basically Closed The Dénouement The Meaning of Cotton Coda: Looney ’Toons, Reprised for Long Tails CHAPTER IX - Long Memory, from the Nile to the Marketplace Abu Nil Father Time A Random Run The Selling of H Coda: Looney ’Toons of Long Dependence CHAPTER X - Noah, Joseph, and Market Bubbles An Alien Plays the Market Two Dual Forms of Wild Variability A Good Reason for “Bubbles” CHAPTER XI - The Multifractal Nature of Trading Time Looney ’Toons for the Last Time Multifractal Time Beyond Cartoons: The Multifractal Model with No Grids Putting the Model to Work PART THREE - The Way Ahead CHAPTER XII - Ten Heresies of Finance 1.

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To me, all the power and wealth of the New York Stock Exchange or a London currency-dealing room are abstract; they are analogous to physical systems of turbulence in a sunspot or eddies in a river. They can be analyzed with the tools science already has, and new tools I keep adding to the old ones as need and ability allow. With these tools, I have analyzed how income gets distributed in a society, how stock-market bubbles form and pop, how company size and industrial concentration vary, and how financial prices move—cotton prices, wheat prices, railroad and Blue Chip stocks, dollar-yen exchange rates. I see a pattern in these price movements—not a pattern, to be sure, that will make anybody rich; I agree with the orthodox economists that stock prices are probably not predictable in any useful sense of the term.

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Thinking in terms of prices, a long sequence of periods of growth with brief downswings—or the opposite. A value of H smaller than one half, shown on the top panel, has strong “anti-persistence”: Successive changes tend to cancel each other out. Again, the power of fractals shows a strange connection among seemingly unrelated phenomena. CHAPTER X Noah, Joseph, and Market Bubbles I will cause it to rain upon the earth forty days and forty nights; and every living substance that I have made will I destroy from off the face of the earth. Genesis 7: 4. What God is about to do he showeth unto Pharaoh. Behold, there come seven years of great plenty throughout all the land of Egypt: and there shall arise after them seven years of famine; and all the plenty shall be forgotten in the land of Egypt; and the famine shall consume the land.

The Economics Anti-Textbook: A Critical Thinker's Guide to Microeconomics
by Rod Hill and Anthony Myatt
Published 15 Mar 2010

The financial institutions that issued the credit default swaps faced a catas­ trophic liability. It was this which led to Lehman Brothers going bankrupt on 261 Postscript depended on keeping the stock market bubble going.’ The bubble Stiglitz is referring to is the stock market bubble of the late 1990s – the one that burst in August 2000. But the same set of incentives was at work in generating the real estate and stock market bubble that burst seven years later. 3 September 2008. The fact that they couldn’t pay up jeopardized every financial institution that had insured against credit default with them. The resulting panic convinced the US authorities not to allow AIG – another huge player in these markets – to similarly collapse.

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Price S2 S1 P2 P1 D2 figure 3.8 Self-fulfilling prophecies D1 Quantity Question for your professor: Changes in expectations about future prices shift both the demand and supply curves. But then what’s efficient about prices being at whatever level we expect them to be? 68 3  |  How markets work © Andy Singer Destabilizing speculation and bubbles We’ve had the Japanese property and stock market bubble (which burst in 1990), the technology stock bubble (which burst in 2001), the Chinese stock market bubble (which burst in 2008) and housing price bubbles in numerous countries which precipitated the financial collapses that began in 2008. Imperfect information is an understatement when it comes to thinking about the future. Yet the textbooks scarcely mention ­issues of time and uncertainty, the role of speculators or the possibility of price ­bubbles (i.e. unsustainable price increases driven by expectations that end in a price collapse).

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For example, in the 2008/09 crisis banks became so suspicious of each other that they refused to lend to each other – exacerbating the credit crunch. This is often referred to as a ‘systemic externality’ since problems at one bank have implications for the banking system as a whole. Limited rationality Real estate and stock market bubbles are driven by investor overconfidence. Akerlof and Shiller (2009) argue that this overconfidence is fed by ‘stories’ that gain such widespread acceptance that they seem undeniably true. For ex­ample, in the 1990s it was commonly believed that real estate was the single best investment anyone could make, because land is limited while the population (and hence the demand for land) is constantly growing.

Meltdown: How Greed and Corruption Shattered Our Financial System and How We Can Recover
by Katrina Vanden Heuvel and William Greider
Published 9 Jan 2009

He could have raised the market’s margin requirements, thereby reducing how much stock people could buy with borrowed money. Krugman reminds us that at the September 1996 meeting of the Federal Open Market Committee (F.O.M.C.), Greenspan told his colleagues, “I recognize that there is a stock market bubble problem at this point” and that it could be solved by “increasing margin requirements. I guarantee that if you want to get rid of the bubble, whatever it is, that will do it.” But he didn’t do it. Nor did he lobby behind the scenes against the huge capital gains tax cut of 1997, which fed the market with another torrent of investor money.

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But since we’re saving nothing these days—the personal savings rate went negative in 2005 for the first time since the Great Depression—the cash had to come from abroad. Since 2001 U.S. foreign debt has increased by a stunning $2 trillion. One thing can be said for the housing mania: It’s kept the economy afloat since the bursting of the stock market bubble in 2000. (Wall Street economists estimate that 40 to 50 percent of the growth in GDP and employment over the last several years has been driven by the housing boom.) When the dot-coms went up in smoke, Alan Greenspan’s Federal Reserve drove interest rates down to 1 percent to contain the economic fallout.

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Rubin defends his thesis by blaming the rising trade deficit on inflexible currency exchange with China and other Asian nations. Correct that and everything will be fine, he says. Further, he explains that the capital deficits in the Clinton years were actually a good thing because the high-tech investment boom was drawing in more foreign investors. He neglects to mention that the boom included the high-tech stock-market “bubble” that collapsed a year later on George W. Bush’s watch, with $6 trillion in losses for investors. In any case, Rubin sees nothing in the trading system itself that needs fixing. “Maybe I’m missing something,” he says, “but I don’t think there’s anything in the design of the system we would have done differently.”

Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism
by Kevin Phillips
Published 31 Mar 2008

In a related vein, over five years the housing sector was calculated to have provided nearly 40 percent of the increase in U.S. GDP and employment. The further benefit was that rising home prices offset much of the nationwide loss of wealth—some $7 trillion—occasioned by the 2000- 2002 collapse of the stock market bubble, most notably the implosion of the tech-laden Nasdaq Index (see pp. 11-13, 62). In California, for example, the price of homes essentially tripled between 1995 and 2006, as you can see in Figure 4.4 on p. 114. Wealth-wise, this increase was gangbusters. It was also a powerful tool of financial expansion, mortgage finance being one of the sector’s weightiest pillars.

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Figure 2.5 measures the trot, canter, and gallop of the 1969- 2006 advance of financial debt, which left all other private debt expansion in the dust. The Flow of Funds Review & Analysis, published by the Virginia-based Financial Markets Center, offered one of the few explanatory backdrops as financial debt hit a crescendo in the year before the stock market bubble popped in 2000:FIGURE 2.5 The Triumph of Leverage Source: Federal Reserve System, Flow of Funds Accounts of the United States. These figures are the latest manifestation of a remarkable rise in financial sector indebtedness that dates to the late 1960s, when U.S. banks began borrowing Eurodollars in huge volumes from their offshore branches. . . .

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Perhaps half of the money pumped into energy and communications debt vanished through bankruptcies and bear market clawings. The partially burst debt and credit bubbles of 2000-2002 had more than a little in common with the burst bubbles of 1969-70 and 1989-92. The floodtides of financial and nonfinancial corporate debt always leave a mess when the waters recede. Indeed, the high-tech and stock market bubble had popped while the Clinton administration was still in office. In its initial months, with a recession already at hand, the administration of George W. Bush was dogged by his family’s and political associates’ closeness to Enron. Thereafter it was plagued well into 2002 by the Texas firm’s failure and apparent criminal culpability.

Money Changes Everything: How Finance Made Civilization Possible
by William N. Goetzmann
Published 11 Apr 2016

In the twentieth century, capital markets democratized investing and stimulated novel solutions to major social problems: social security, sovereign funds, and personal savings accounts are all mechanisms intended to reduce household economic risk. They have deep roots in the history of finance. Along with these important contributions to humankind, finance has also created problems: debt, market bubbles, devastating crises and crashes, exploitative corporations, imperialism, income inequality—to name only a few. The story of finance is the story of a technology: a way of doing things. Like other technologies, it developed through innovations that improved efficiency. It is not intrinsically good or bad.

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The fragmented political economy of Europe fostered the development of investment markets; the reinvention of the corporation; extra-governmental banking institutions; complex insurance contracts on lives, property, and trading ventures; and a sophisticated tradition of financial mathematics, reasoning, and analysis. These innovations, in turn, changed human behavior. I argue that they altered attitudes toward risk and chance, leading on the one hand to probabilistic thought and calculation and on the other hand to unbridled speculation that fueled the world’s first stock market bubbles. Europeans ultimately turned themselves and the rest of the world into investors. The key stages in Europe’s development are first, the emergence of financial institutions; second, the development of securities markets; third, the emergence of companies; fourth, the sudden explosion of stock markets; fifth, the quantification of risk; and finally, the spillover of this system to the rest of the world.

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He proposed the creation of GDP-indexed products to hedge against unemployment. These products were met with mild interest in the boom years of the US economy, but, like other projectors before him, Bob Shiller may only have been ahead of his time. One of his ideas instantly caught the public’s imagination, however. He became famous for his study of stock market bubbles and his forecast of the bursting of the Internet craze. A scholar with a gentle, inquiring demeanor, Bob Shiller has always had an interest in the psychology of the stock market. We came to know each other over years of talking about everything from econometrics to the puzzle of investor behavior.

Culture and Prosperity: The Truth About Markets - Why Some Nations Are Rich but Most Remain Poor
by John Kay
Published 24 May 2004

Even if the company makes no distributions, it has earnings and assets, and this gives value to the shares even if none of that value is in practice passed to shareholders. You may not find that argument entirely persuasive, nor do I; but so long as enough people believe it, you and I can expect to be able to sell our Microsoft shares to them. After the bursting of the stock market bubble in 2000, however, fewer people believed it than before. In 2003, Microsoft announced that it would pay its first dividend. Valuing Securities ••••••••••••••••••••••••••••••••••••• People who claim to predict share-price movements may be fundamental or technical analysts. Fundamental analysis looks at expec- Culture and Prosperity {171} tations of future earnings and dividends.

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Why are people who know more about this venture and have more influence over its outcome than I do offering a share of its potential profits to me? Why should I buy when they Culture and Prosperity { 243} want to sell? 19 Many people would be better off today if they had asked that question during the stock market bubble. The good reason for relinquishing a share of a potentially profitable investment is that the risk is too large for one individual or institution. Antonio could handle the loss of one ship, but not of three. Marine insurance would have enabled him to diversify the risk of storm at sea, but the risks associated with his own business judgment remained.

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He claims that market speculation is necessarily stabilizing. Speculators make money only if they buy cheap and sell dear; only speculators who make money will stay in the market for long. So prices will fluctuate less in a market with active speculation than without. 21 Yet speculation in the stock market bubble was obviously destabilizing, driving prices to fantastic levels from which they subsequently collapsed. If all traders were perfectly rational (consistent, Culture and Prosperity { 245} self-interested, profit-maximizing, well-informed), there would be no room for speculation, profitable or unprofitable.

The Rise and Fall of Nations: Forces of Change in the Post-Crisis World
by Ruchir Sharma
Published 5 Jun 2016

When a recession follows a bubble that is not fueled by debt, five years later the economy will be 1 to 1.5 percent smaller than it would have been, if the bubble had never occurred. However, if the bubble is debt driven, the losses are worse. In the case of a stock market bubble fueled by debt—meaning investors were borrowing heavily to buy stock—the economy five years later will be 4 percent below its previous trend. A debt-fueled housing market bubble will have an even uglier endgame, with the economy shrinking as much as 9 percent compared with where it otherwise would have been, five years on. The need to keep an eye on asset price inflation is particularly important in 2015, when many economists are warning that the world faced the opposite concern: Japan-style deflation.

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Often a crash in prices of houses or stocks will depress the economy, because when those asset prices fall sharply, the result is a real decline in wealth. When people feel less wealthy, they spend less, resulting in lower demand and a fall in consumer prices as well. In other words, asset price crashes can trigger bouts of bad consumer price deflation. This is what happened in Japan, where the real estate and stock market bubbles of the 1980s collapsed in 1990 and led to the long fall in both asset and consumer prices. It is also what happened in the United States during the Roaring Twenties, when the runaway optimism of the age drove up stock prices by 250 percent between 1920 and the peak in 1929. Then the market crashed and was followed by consumer price deflation in the early years of the Great Depression.

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This link has tightened dramatically since World War II, with forty out of sixty-two recessions—nearly two-thirds—following on the heels of a collapse in the housing or the stock market. The paper offered a number of benchmarks for understanding the likely fallout from these bubbles. In general, housing bubbles took longer to reach a peak than stock market bubbles, largely because stock prices are more volatile than home prices. Housing bubbles were much less common than stock price bubbles, but when they did occur, they were much more likely to be followed by a recession. And once prices for either houses or stocks rise sharply * above their long-term trend, a subsequent drop in prices of 15 percent or more signals that the economy is due to face significant pain.

Priceless: The Myth of Fair Value (And How to Take Advantage of It)
by William Poundstone
Published 1 Jan 2010

Market shows up every day quoting sky-high prices that only seem to go up. Most investors find it impossible to ignore the siren song. How could Mr. Market be so very wrong, day after day? As early as 1982, Stanford economist Kenneth Arrow identified Tversky and Kahneman’s work as a plausible explanation for stock market bubbles. Lawrence Summers took up this theme in a 1986 paper, “Does the Stock Market Rationally Reflect Fundamental Values?” Summers (now head of the National Economic Council for the Obama administration) was the first to make an extended case for what might now be called the coherent arbitrariness of stock prices.

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“Explorations in Anchoring: The Effects of Prior Range, Anchor Extremity, and Suggestive Hints.” Unpublished manuscript, Stanford University, Stanford, Calif. Cited in Jacowitz and Kahneman 1995. Reinhardt, Uwe E. (2009). “Jack Welch and the Lone Ranger Theory.” The New York Times, Feb. 20, 2009. Reyburn, Scott, and Katya Kazakina (2008). “How Monet, Freud, Hirst Records Led Art-Market Bubble to Burst.” Bloomberg.com, Dec. 29, 2008. Riding, Alan (2007). “Alas, Poor Art Market: A Multimillion-Dollar Head Case.” The New York Times, June 13, 2007. Ritov, Ilana (1996). “Anchoring in Simulated Competitive Market Negotiation.” Organizational Behavior and Human Decision Processes 67, 16–25.

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Crew clothing company, 190, 203, 205 Jensen, Keith, 123–24 Jensen, Marlene, 232 JetBlue Airlines, 182, 183 Jews: Israeli, 81–82; mobsters, 49; Nazi persecution of, 83–84 Jobs, Steve, 184, 257 Johns Hopkins University, 52 Johnson, Eric, 280–82 Johnson & Johnson, 6 Jopling, Jay, 267 Journal of Business, 110 Journal of Consumer Research, 153, 280 Journal of Experimental Psychology, The, 65 juries, 197; damages awarded by, 3–4, 17–21, 276–79 Kahn, Irah, 84 Kahneman, Daniel, 16, 83–87, 105, 133, 146, 147, 188, 196, 236; on altruism, 117; on anchoring, 144, 207; economists’ hostility to, 77; fairness research of, 106–107, 110, 112–14; heuristics of, 88–89, 125–28, 197; on jury awards, 19, 276–77, 279; at Oregon Research Institute, 28, 87–88; on priming, 92, 94, 286; prospect theory of, 97–99, 101–102, 104, 132; and stock market bubbles, 261; on ultimatum game, 113, 115; United Nations experiment of, 10–12, 90 Kalmar, Tepper, 160, 161 Kelley Blue Book, 75 Kelly, Walt, 76 Kennedy, Edward, 257 Kenya, 122 Klein, Calvin, 246 Knetsch, Jack, 105, 107, 110, 113–14, 117 Kohl, Helmut, 271 Koolhaas, Rem, 158 Kouri, Elena, 250 Kozlowski, Dennis, 234–36 Kozlowski, Karen, 234 Krueger, Alan, 165–66 Kucher, Eckhard, 148–49 Lacayo, Richard, 267 Lagavulin whiskey, 219 laissez-faire capitalism, 108 Lamelera people, 123 “Landlord’s Game, The,” 284 La Rue, Diane, 167 Las Vegas Review Journal, 71 Laube, Jim, 160 laundry detergent, 180 Lauren, Ralph, 155 lawsuits, jury awards in, 3–4, 17–21, 276–79 Leaves of Grass (Whitman), 194 Lee, Bob, 144 Leeds, University of, 219 Leeuwenhoek, Anton von, 208 Lehman Brothers, 268 Leipzig, University of, 30 Lichtenstein, Donald, 204–206 Lichtenstein, Sarah, 10, 28, 53, 62–77, 79, 81, 82, 87, 90, 220 Liebeck v.

The Dollar Meltdown: Surviving the Coming Currency Crisis With Gold, Oil, and Other Unconventional Investments
by Charles Goyette
Published 29 Oct 2009

How the extension of more credit would ameliorate a crisis created by excess credit wasn’t explained. Also missing from the authorities’ explanations were examples of financial bubbles, once having popped, being successfully reinflated. No amount of intervention-ism has been able to reinflate the Japanese real estate and stock market bubbles that burst twenty years ago. Nor was there any clarity offered to explain why financial institutions that were incapable of sound operations should be preserved. The benefits to stimulus recipients were clear, but a holistic approach demands examination of not just benefits, but costs as well.

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Driving rates to 3 percent by the time he was finished, Greenspan fundamentally altered the investment outlook and risk-taking proclivities of retired people and baby boomers alike, as they sought to make up in the stock market for the certificate of deposit and fixed income returns that had disappeared. Ultimately Americans lost $6 trillion in that Greenspan stock market bubble. But while the profits of the banks from market distortions are privatized, banking system losses, as we are wit nessing, are socialized. More alarming is the role of the central bank in funding wars not popular enough to be sustained by direct taxation. This function has been on display since the Federal Reserve Act of 1913 was first passed.

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

Profiting Without Producing: How Finance Exploits Us All
by Costas Lapavitsas
Published 14 Aug 2013

First, there has been a clear upward trend across the four countries, signalling increasing penetration of the non-financial sector by financial relations. Second, both the Japanese bubble of the late 1980s and the wider stock market bubble of the late 1990s were driven by the acquisition of financial assets by the non-financial sector. This is far from unusual for stock market bubbles, which typically involve late purchases of financial assets by small investors that eventually result in capital losses. Third, in sharp contrast, the bubble of the 2000s in the US and the UK was not accompanied by significant increases in the holdings of financial assets by households and enterprises.

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The point is that, if prices fell, the financial profits made by the last seller would come entirely out of the loanable capital (or idle money) of the last buyer. This would be a zero sum game, a pure redistribution of loanable capital (and idle money) among different sections of economy and society. This is far from a rare event in financial markets. Stock market bubbles, for instance, typically attract small shareholders who are caught in the euphoria of the boom and buy financial assets on exaggerated expectations of future returns. When the crash comes, they register net losses, which correspond to profits made by previous sellers of financial assets (and by the same token of the financial institutions which mediated the transactions).

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By the end of the 2000s and after the crisis of 2007 had fully emerged, it transpired that there had not been much of a ‘productivity miracle’ in the US, or anywhere else. The strong productivity gains of the late 1990s were associated with the investment boom in new technology that partly led to the stock market bubble of 1999–2000. In the second half of the 2000s productivity growth in the US and in the other three countries showed no exceptional vitality. Whatever gains have been registered in the latter half of the 2000s appear to have been related to reductions in employment and other ‘efficiency’ measures, rather than to technological progress.

China's Future
by David Shambaugh
Published 11 Mar 2016

China’s economy is already burdened by an estimated 282 percent of total debt as a percentage of gross domestic product (GDP). This is unsustainable in the eyes of many economists, despite China’s huge liquidity reserves. As for asset bubbles, 2014–2015 witnessed the bursting of urban property bubbles in several major cities, as well as the bursting of the stock market bubble on the Shanghai and Shenzhen exchanges. Excess manufacturing capacity and inventories are also problems. Another growing concern is the relative decline in foreign inbound investment, which is related to the increased costs and difficulties of operation for foreign multinationals in China. What other time bombs lurk waiting to burst in China’s opaque economy?

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Figure 2.3 China’s Alternative GDP Projections Once again, we saw that the Visible Hand of the Chinese economy is the state. Every time the government intervenes to stem a temporary economic crisis it only exacerbates and deepens existing dependency on the state while further postponing much-needed reforms that would permit the economy to respond to real and transparent market signals. The property market bubble has also peaked and declined precipitously in several major cities (due to oversupply and inflated prices for both residential and commercial units) while land sales are declining nationwide. The overheated market began to fall in mid-2012 and has continued a decline since, despite government intervention to prop it up.

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Massive “ghost cities” stand eerily empty across the country.21 While it was a necessary self-correction, many ordinary Chinese who had bought homes for the first time are left with depleted equity; it will take a very long time to recover their initial investments. For China’s middle class and ordinary first-time investors, the twin “scissors effect” of the stock market and property market bubbles bursting has hit them hard. It is made worse by the fact that many of these eager citizens borrowed from secondary “shadow banking” entities to buy stock or a flat, and are now left with crippling debt. Chinese officials have only themselves to blame as they openly encouraged the rise in share prices in 2014 and 2015, precisely because it suited their strategy of trying to reduce the economy’s dependence on credit: a buoyant stock market would give companies a way of funding themselves that did not put more debt on their balance sheets.

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

Contents Introduction 1 Fundamental Themes 2 What Happened? 3 Government Monetary Policy: The Fed as the Primary Cause 4 FDIC Insurance: The Background Cause 5 Government Housing Policy: The Proximate Cause 6 The Essential Role of Banks in a Complex Economy: The Liquidity Challenge 7 The Residential Real-Estate-Market Bubble and Financial-Market Stress 8 Failure of the Rating Agencies: The Subprime Mortgage Market and Its Impact on Capital Markets 9 Pick-a-Payment Mortgages: A Toxic Product of FDIC Insurance Coverage 10 How Freddie and Fannie Grew to Dominate the Home Mortgage Lending Business 11 Fair-Value Accounting and Wealth Destruction 12 Derivatives and Shadow Banking: A Misunderstanding 13 The Myth that “Deregulation” Caused the Financial Crisis 14 How the SEC Made Matters Worse 15 Market Corrections Are Necessary, but Panics Are Destructive and Avoidable 16 TARP (Troubled Asset Relief Program) 17 What We Could Have—and Should Have—Done 18 The Cure for the Banking Industry: Systematically Move Toward Pure Capitalism 19 Some Political Cures: Government Policy 20 Our Short-Term Path and How to End Unemployment 21 The Deepest Cause Is Philosophical 22 The Cure Is Also Philosophical 23 How the United States Could Go Broke 24 The Need for Principled Action 25 Conclusion Notes Index Acknowledgments Introduction THE PURPOSE OF THIS BOOK IS TO PROVIDE AN INTEGRATED INSID-er’s perspective on the recent financial crisis, the related Great Recession, and why a meaningful economic recovery has not occurred.

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They ignore the fact that the very existence of the Fed creates extremely powerful incentives (human nature) for bank managements to increase risk in good times. Instead of being countercyclical, as its proponents argue, the Fed is pro-cyclical because of its effect on human behavior through the financial and psychological incentives that it creates. 7 The Residential Real-Estate-Market Bubble and Financial-Market Stress AS WE HAVE DISCUSSED, THE “BURSTING” OF THE BUBBLE (MISIN-Vestment) in the residential real estate markets led to the deterioration of the capital markets and to the Great Recession. In reality, it was the actions that led to the misinvestment (bubble) in the first place that were destructive.

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The FDIC’s mission is to protect the safety and soundness of the banking system. If covering uninsured depositors is necessary, it can do so, but it should let the losses fall on the insurance fund, not on innocent bondholders. Violating the rule of law has consequences. The bursting of the real estate–market bubble turned into an international financial crisis for several reasons. First, foreign financial institutions had invested heavily in the U.S. housing market. They suffered capital losses and the resulting reductions in liquidity (lending capacity), as previously described for U.S. institutions, and these reductions were then transmitted to their home economies.

The Levelling: What’s Next After Globalization
by Michael O’sullivan
Published 28 May 2019

One policy question that arose in the 1920s is how central bankers should react to bubbles in asset prices: should they act early to halt exuberance, or should they accept that this is neither the responsibility nor within the capability of central banks? Financial market bubbles are usually evident with the benefit of hindsight,12 though often the behavior of people involved in a financial market bubble is a good indication of its existence. Charles Kindleberger and Robert Aliber’s book Manias, Panics, and Crashes is perhaps the best text on the topic, though Charles MacKay’s Extraordinary Popular Delusions and the Madness of Crowds, published in 1841, is a reminder that investors and perhaps policy makers do not learn from history.

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Seen It All Before There are many parallels between the first wave of globalization and the current one, the most important being the rise in trade, the growth of financial systems, and the rapid diminution in the cost of doing business as transportation and communication costs dropped. It is also interesting to note that stock market bubbles arose during both periods of globalization, driven by the advent of new technologies. In the early twentieth century it was primarily the railway, telephone, and radio stocks that led the rise in share prices. In 1900, over 60 percent of the market capitalization of the US stock market and 50 percent of the UK market was made up of railway stocks, which have all but disappeared today.

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In this respect, the blame for the financial crisis lies at the feet of the banking and financial services industry. Equally, much of the recent work of central bankers has been directed at undoing and calming the damage done by the financial crisis. We should at the very least bear this in mind when criticizing the extremes to which central bankers have gone in their attempts to revive growth. Financial market bubbles are an unfortunate and recurring part of central banks’ relationship with financial markets and economies. The response to the emerging-market crisis in the late 1990s, a series of emergency interest rate cuts led by the Federal Reserve, helped create the dot-com bubble of the next decade, and, arguably, the policy response to the global financial crisis (over seven hundred interest rate cuts internationally by 2018) is creating extreme risks in economic and market behavior today.

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

It is the interest rate on funds banks lend to each other to meet requirements for the reserves against bank loans required by the Fed. The Fed raised it from roughly 6 percent to 9 percent that year. Once the Fed started raising rates, the previously soaring stock market cracked almost immediately. As a consequence of the higher rates and the burst market bubble, GDP contracted toward the end of 1969 after nearly ten years of expansion, and the rate of unemployment began to rise. The stock market continued to plummet in the first half of 1970, and the economy officially slid into recession as the unemployment rate rose above 6 percent. Until this point, economists believed the New Economics had largely solved the problem of serious economic recession.

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In a speech in December 1996, Greenspan suggested that the stock market might have reached a stage of “irrational exuberance.” It was a Sunday, but markets then open in Australia and New Zealand immediately fell, leading to a cascade of falling prices around the world. Would the Greenspan Fed now raise interest rates to burst the stock market bubble? The Dow Jones Industrials fell sharply the next day, and Greenspan was chastened by the market response. The Fed did not raise rates and calm quickly returned. Despite rapid economic growth at an annual rate of 4 percent or more, inflation fell below 3 percent in 1997 and below 2 percent in 1998.

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In June, the Fed raised the federal funds rates by .25 percent, the first increase since early 1997, followed by five more increases, the last a major hike of .5 percent. In total the federal funds target was raised from 4.75 percent in early 1999 to 6.5 percent in May 2000. The rate hikes took their toll. The stock market bubble burst in midyear. By the end of 2000, the Nasdaq index had fallen from a high of 5,000 to 3,500 on its way down to nearly 1,000 in 2003. By early 2001, the Dow Jones Industrials lost 1,000 points from its high above 11,000, revived slightly, and then headed to below 8,000 two years later. The long period of growth, overspeculation, and overinvestment in high technology and telecommunications was coming to an end, and lower stock prices and rising interest rates brought on a serious recession as George W.

How Markets Fail: The Logic of Economic Calamities
by John Cassidy
Published 10 Nov 2009

When an initial disturbance occurs, price changes set in force offsetting movements, which restore equilibrium. (The opposite of negative feedback is positive feedback, which amplifies initial disturbances. Positive feedback helps to cause nuclear explosions, rapid population growth, and stock market bubbles.) It should be noted that none of these adjustments is imposed from above: in the language of systems analysis, they are all “emergent” properties, which result from a multiplicity of individual interactions. Each businessman “intends only his own gain,” Smith wrote, “and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention . . .

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There are no monopolists, such as Microsoft, and no oligopolists, such as Exxon Mobil and Chevron, Citigroup and Goldman Sachs. Financial markets exist, but only in a very abstract form. People are assumed to plan ahead for every possible state of the world and make contingency plans for each of them. There is no place for stock market bubbles, banking crises, or lending crunches. The typical ups and downs of a modern credit-driven economy are nowhere to be seen. When I interviewed Lucas in 1996, he was engagingly modest about his achievements, perhaps because he could afford to be. (The preceding year, he had visited Stockholm to pick up his Nobel.)

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The third-generation rational expectations models can be useful for exploring the old question of how central banks should set interest rates to achieve a low and stable rate of inflation, but they have virtually nothing to say about what policymakers should do to maintain financial stability. As in the original Lucas models, there is no role in them for stock market bubbles, credit crunches, or a drying up of liquidity. Indeed, recognizable financial markets don’t really exist. The illusions of harmony, stability, and predictability are maintained, and Hayek’s information processing machine does its job perfectly: at all times, prices reflect economic fundamentals and send the right signals to economic decision-makers.

Understanding Asset Allocation: An Intuitive Approach to Maximizing Your Portfolio
by Victor A. Canto
Published 2 Jan 2005

That said, looking at data since the late 1980s, it follows that value stocks outperformed as the economy went into a recession and there was uncertainty regarding the tax code. Growth stocks next outperformed during the gridlock period, when moves to higher taxes and regulation were arrested by a divided government. Add to that low and steady inflation and there was little uncertainty during the mid- and late 1990s. When the corporate scandals broke, and the stock market bubble popped, uncertainty crept back in and value stocks reigned once again. The Location Cycles Before I get into location cycles, I need to make some assumptions about exchange rates. In the long run (by this, I mean the economy will approach its equilibrium in the long run), purchasing power parity (PPP) will be restored.

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After that, the tax policies of Presidents Bush and Clinton brought about a cycle in which capital gains’ advantage over dividends steadily increased. Not surprisingly, returns in the 1990s were generated mostly in the form of capital gains as the corporate structure changed to take advantage of the tax laws. Ultimately, corporate behavior also adjusted, with some companies going over the line. All this of course changed when the stock market bubble burst in the late 1990s, subsequently reducing the dividend tax rate. At the present moment, the advantage of capital gains over dividends has been completely eliminated. Now let’s focus again on cycles, beginning with high-yield Treasury bonds (Tbonds). The first round of Reagan tax-rate cuts (The Economic Recovery Tax Act of 1981) represented a major inflection point in the relative rankings of the costs of the return-delivery vehicles.

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On the other hand, price declines induced by demand shifts are quite bearish (see Figure 11.3d). A lack of demand induces a doubly negative effect on profits. Not only do producers collect less money per unit sold, they also sell fewer units. The quintessential example of this is Japan during its deflation years—a stock market bubble that burst in the early 1990s reduced the net worth of individuals and corporations alike. In turn, the credit worthiness of companies was reduced, forcing banks to curtail their loans. The decline in asset prices also reduced the net capital and capital adequacy of the banks, forcing them to further curtail their loan operations.

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

Even if the central bank’s mission was to deliver stable growth, and even if bubbles could destabilize growth just as surely as inflation, the Fed had decided to target inflation, mainly because the disinflationary forces in the world were making this the easy option. Following Lindsey’s advice, in contrast, would be hard. “We have very great difficulty in monetary policy when we confront stock market bubbles,” Greenspan declared to his colleagues. “To the extent that we are successful in keeping product price inflation down, history tells us that price-earnings ratios [and hence stock prices] under those conditions go through the roof. What is really needed to keep stock market bubbles from occurring is a lot of product price inflation. . . . There is a clear tradeoff. If monetary policy succeeds in one, it fails in the other.” In the last years of his tenure, and into retirement, Greenspan attempted to rewrite this phase of his history.

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But the truth, as revealed in Greenspan’s 1959 paper, is that he had been thinking about balance-sheet recessions for decades—in fact, he had been aware of them for longer than many of his critics had been breathing. The fact that he nonetheless allowed bubbles to inflate on his watch demands an explanation that goes deeper than his purported ignorance. Greenspan’s attack on the 1920s Fed involved one further argument. The Fed’s mistake in the 1920s was not merely to rationalize the stock market bubble by embracing the talk of a new era of stability, akin to the “Great Moderation” that economists unwisely celebrated in the 1990s and 2000s. Rather, the Fed’s key error was to underestimate its own contribution to the stock bubble. 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.

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A large section of this masterwork was devoted to arguing that the Fed had made the Depression worse than it need have been, allowing the money supply to collapse in the 1930s and so suffocating businesses. The implication was that discretionary monetary policy had failed disastrously, not once but twice—the Fed had helped to bring on the Depression by fueling the stock market bubble of 1929, as Greenspan had argued in his 1959 article; and it had also rendered the aftermath unnecessarily painful. It is likely that Greenspan’s disapproving attitude toward central-banking orthodoxy was fortified by Friedman’s thesis. The year after the Monetary History appeared, he built on his client letters with an academic version of his critique, which appeared in the Journal of Finance.42 But by late 1963, Greenspan’s mind was turning to a more ambitious project.

The Shifts and the Shocks: What We've Learned--And Have Still to Learn--From the Financial Crisis
by Martin Wolf
Published 24 Nov 2015

What made the challenge far more difficult is that the sector of the domestic economy best equipped to spend more than its income or, more precisely, invest more than its savings, is the corporate sector. It did just that at the peak of the stock-market bubble in the late 1990s: indeed its financial deficit, thus defined, reached 4 per cent of GDP. But from 2000 to the crisis of 2008, the business sector was in rough balance, despite the easy monetary policy (see Figure 33).33 This is largely because gross business investment peaked at 13.6 per cent of GDP in the second quarter of 2000, as the stock-market bubble burst. It then fell to 10.1 per cent of GDP in the second quarter of 2003, before rising modestly to 11.8 per cent in the second quarter of 2007, as the economy recovered, just before the global financial crisis.

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We can only understand the challenges for US policymakers after 1997, particularly for the Federal Reserve, in the light of what was happening elsewhere. Their job, mandated in law, was (and is) to stabilize inflation and keep unemployment low in the US. We may define this combination as internal balance. Between 1997 and 2000, the stock-market bubble did a good job of sustaining demand without any need for heroic monetary policy (see Figure 29). But the bubble then burst. The Fed found itself confronting a much weaker economy. It slashed interest rates. Then came another shock – the terrorist attack of 11 September 2001. The recovery was weak.

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Anybody who argues for such a policy is, in essence, arguing for a different monetary regime. The final question is how far it is possible to live with a financial system capable of imploding in response to what was no more than a modest policy mistake, given the obvious reasons for loose monetary policy after the implosion of the stock-market bubble in 2000 and the terrorist attacks on the US of 11 September 2001. That is perhaps the biggest question of all, to which I will turn in Part III. For all these reasons, the argument that what was needed was a tighter monetary policy does not get us far. The question is how much tighter and with what consequences.

After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead
by Alan S. Blinder
Published 24 Jan 2013

Sure, the Colombians were doing much better at managing their economy, and I claimed no special expertise about the country. But a mere 100 basis points over Treasuries, which implied a 1 percent expected loss rate per annum, seemed wildly optimistic. So when I came to the part of my speech about the bond-market bubble and put a picture of Wile E. Coyote on the screen, I had Colombian debt on my mind. When I asked who among the assembled brokers thought that 100 basis points was a reasonable spread over U.S. Treasuries, not a single hand went up. Then I broke the news: The market does, because that’s what Colombian bonds sell for today.

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Seems like a no-brainer, right? And if default risk really is negligible, it is. But, of course, the risk wasn’t negligible. Investors should never have extrapolated the amazingly favorable default experience of 2004–2006 into the indefinite future. But they did. It was the kind of thinking that led to the bond-market bubble. As investors shifted out of Treasuries into riskier fixed-income securities—whether Columbian government bonds or MBS backed by subprime mortgages—those riskier securities were bid up in price, and hence down in yield. You had to pay more to buy the same stream of interest payments. So what was once, say, a 150-basis-point reward for bearing more risk became a 100-basis-point reward, or maybe just a 50-basis-point reward.

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Can we prevent asset-price bubbles in the future? Here, unfortunately, the answer is mostly no. Speculative markets have succumbed to occasional bubbles for as long as there have been speculative markets. Indeed, one of the first common stocks ever issued, in the South Sea Company in England, was hyped into the first stock-market bubble—the famed South Sea Bubble of 1720—which devastated, among others, a pretty smart fellow named Isaac Newton. And the Dutch had managed to grow a gigantic bubble in—of all things—tulip bulbs almost a century earlier. No, while we may be lucky enough to nip a few bubbles in the bud, we will never stamp them out.

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing
by Burton G. Malkiel
Published 10 Jan 2011

By mid-August 1992, the index had declined to 14,309, a drop of about 63 percent. In contrast, the Dow Jones Industrial Average fell 66 percent from December 1929 to its low in the summer of 1932 (although the decline was over 80 percent from the September 1929 level). The chart The Japanese Stock-Market Bubble: Japanese Stock Prices Relative to Book Values, 1980–2000 shows quite dramatically that the rise in stock prices during the mid-and late 1980s represented a change in valuation relationships. The fall in stock prices from 1990 on simply reflected a return to the price-to-book-value relationships that were typical in the early 1980s.

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Various measures of land prices and property values indicate a decline roughly as severe as that of the stock market. The bursting of the bubble destroyed the myth that Japan was different and that its asset prices would always rise. The financial laws of gravity know no geographic boundaries. THE JAPANESE STOCK-MARKET BUBBLE JAPANESE STOCK PRICES RELATIVE TO BOOK VALUES, 1980–2000 Source: Morgan Stanley Research and author’s estimates. THE EXPLOSIVE BUBBLES OF THE EARLY 2000s If you can keep your head when all about you are losing theirs… Yours is the Earth and everything that’s in it… —Rudyard Kipling, If— FINANCIALLY DEVASTATING AS the bubbles of the last decades of the twentieth century were, they cannot compare with those of the first decade of the twenty-first century.

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The ability to avoid such horrendous mistakes is probably the most important factor in preserving one’s capital and allowing it to grow. The lesson is so obvious and yet so easy to ignore. THE U.S. HOUSING BUBBLE AND CRASH OF THE EARLY 2000s Although the Internet bubble may have been the biggest stock-market bubble in the United States, the bubble in single-family home prices that inflated during the early years of the new millennium was undoubtedly the biggest U.S. real estate bubble of all time. Moreover, the boom and later collapse in house prices had far greater significance for the average American than any gyrations in the stock market.

The Making of Global Capitalism
by Leo Panitch and Sam Gindin
Published 8 Oct 2012

But crucially important in explaining why the financial crisis turned into such a severe economic crisis was that the collapse of housing prices also undermined workers’ main source of wealth, leading to a dramatic fall in US consumer spending. The bursting of the housing bubble thus had much greater effects than had the earlier bursting of the stock-market bubble at the turn of the century, and much greater implications for global capitalism in terms of the role the US played as “consumer of last resort.” In true imperial fashion, the US fully shared its problems with the rest of the world. Given the role of US financial assets and consumer spending in global capitalism, illusions that other regions might be able avoid the crisis were quickly dispelled.

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After 1926 the Federal Reserve kept US interest rates low, in order to support sterling following Britain’s return to the gold standard; yet the main effect of low interest rates was to shift funds from bonds to further speculation in already overheated US stock and real-estate markets. Then, when in 1928 the Fed undertook a relatively modest interest-rate increase to dampen this down, it triggered a massive diversion of funds away from foreign loans, with immediate deflationary effects abroad. Finally the sudden bursting of the stock and real-estate market bubbles in October 1929 more or less completely cut off the flow of US credit that had kept the rickety international financial system going through the 1920s.34 On the eve of the 1929 New York stock market crash, the American economy accounted for no less than 42 percent of global industrial production—far more than Britain’s share even at its peak in 1870.35 That said, the development of the US domestic economy was itself highly uneven.

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The Plaza Accord only finally ended what Japan’s own finance minister admitted was the American state’s long-standing toleration of an exchange rate that had amounted to a “subsidy to Japan’s exports to the United States and an import surcharge on US exports to Japan.”71 Japanese banks briefly came to dominate the standard rankings of the world’s largest financial institutions as they provided easy credit for Japan’s historically unprecedented purchase of assets abroad, and became conduits for a real estate and stock-market bubble inside Japan. But their vastly expanded assets concealed highly questionable lending and corporate reporting practices, as well as a technological backwardness that belied their size and prominence (in the late 1980s check-clearing in Tokyo was still done by hand rather than computer, and there were as yet no twenty-four-hour ATMs).72 Even before Plaza, Japanese banks were already implicated in the collapse of Continental Illinois, and after Plaza they were even more implicated in the US stock market crash of 1987.73 At the same time, the Ministry of Finance and the Bank of Japan not only had increasingly less effective control over what was happening in their domestic financial system, but also demonstrated little interest in seeing the yen displace the dollar as the world’s reserve currency—much less in assuming the responsibilities of global financial leadership.

Unconventional Success: A Fundamental Approach to Personal Investment
by David F. Swensen
Published 8 Aug 2005

Treasuries produced risk-adjusted returns significantly higher than those realized by holders of the PCA9.625s. Holders of PCA stock faced a tough set of circumstances. In contrast to the strong market enjoyed by bondholders, equity owners faced a dismal market environment. From the date of PCA’s IPO, which took place near the peak of one of the greatest stock market bubbles ever, to the bond-tender offer date, the S&P 500 declined a cumulative 24.3 percent. Bucking a decidedly adverse market trend, PCA’s equity rose from the initial offering price of $12.00 in January 2000 to $18.05 on July 21, 2003, representing a holding-period gain of 50.4 percent. Even in the worst of worlds for equity holders and the best of worlds for bondholders, the equity owners of PCA eked out a victory.

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Amid one of the greatest bull markets of all time, mutual-fund investors held cash-heavy, equity-light portfolios. INVESTOR REACTION TO THE INTERNET BUBBLE Investors receive similarly poor marks for their asset allocation of mutual funds during the inflation and deflation of the 1990s stock market bubble. Throughout the bull market, mutual-fund investors consistently increased stock holdings at the expense of bond and money-market allocations. Consider the period from 1993 to 2000. Investors registered equity-allocation readings in the 30 percent range in 1993 and 1994, in the 40 percent range from 1995 through 1997, in the 50 percent range in 1998 and 1999, and in excess of 60 percent at the market peak in 2000.

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Under normal market conditions, rebalancers occupy a mildly contrarian space, seen as slightly out of step with conventional wisdom. In times of severe market stress, rebalancing takes on a decidedly dramatic cast. Market collapses require substantial purchases in an environment pervaded by bearish sentiment. Market bubbles require substantial sales in an environment suffused with bullish enthusiasm. Under extraordinary market conditions, rebalancers must demonstrate unusual determination and fortitude. In spite of the central importance of rebalancing to effective portfolio management, investors appear largely indifferent to the process.

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

Between 1995 and 1998, rates were held at about 5 percent. Hoenig sat on the FOMC during this entire period, serving as a voting member every third year. In 1998, he was a voting member again. This timing happened to coincide with one of Alan Greenspan’s more aggressive actions, a series of rate cuts in the late 1990s that fueled a stock market bubble. The rate cuts illustrated that while using the Fed’s power might not generate any natural enemies, it did come with very high costs for the American people. * * * Behind the cloud of Fedspeak, there were, in fact, serious political disputes unfolding inside the FOMC during the 1990s. One of the most important policy decisions, in retrospect, had to do with inflation.

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It was a pivotal moment for the Fed: By cutting rates, it had made money cheaper and encouraged more lending and stock purchases. The Fed could now wait and see how the stimulus worked its way through the system, or it could accelerate the money flow even further, potentially inflating the stock market bubble. Hoenig had to decide if he would cast his second dissenting vote if Greenspan pushed for another rate cut. Fed chairmen usually downplay the impact of low interest rates on the stock market, but Greenspan was blunt about the connection during the November meeting. He acknowledged that the stock market might be a bubble, which made him hesitate about cutting rates even more.

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This was the signal that the self-reinforcing logic of ever-rising asset values was over, and it was over because the Fed was raising rates. Pets.com declared bankruptcy in November. The stock market crash of 2000 wiped out $1.76 trillion of value in 280 Internet stocks between March and November. The Federal Reserve had played a decisive role in creating, and then destroying, the multitrillion-dollar stock market bubble. But when the market crashed, bankers, traders, and politicians turned to the Fed for help. The disaster only seemed to enhance Greenspan’s reputation as a financial rescue artist. Only the Fed was believed to hold the power to recalibrate markets and avert a larger disaster. This fact revealed a third pillar of Greenspan’s policy framework as Fed chairman.

Stocks for the Long Run 5/E: the Definitive Guide to Financial Market Returns & Long-Term Investment Strategies
by Jeremy Siegel
Published 7 Jan 2014

Small- and Large-Cap Stocks Trends in Small-Cap Stock Returns Valuation: “Value” Stocks Offer Higher Returns Than “Growth” Stocks Dividend Yields Other Dividend-Yield Strategies Price/Earnings Ratios Price/Book Ratios Combining Size and Valuation Criteria Initial Public Offerings: The Disappointing Overall Returns on New Small-Cap Growth Companies The Nature of Growth and Value Stocks Explanations of Size and Valuation Effects The Noisy Market Hypothesis Liquidity Investing Conclusion Chapter 13 Global Investing Foreign Investing and Economic Growth Diversification in World Markets International Stock Returns The Japanese Market Bubble Stock Risks Should You Hedge Foreign Exchange Risk? Diversification: Sector or Country? Sector Allocation Around the World Private and Public Capital Conclusion PART III HOW THE ECONOMIC ENVIRONMENT IMPACTS STOCKS Chapter 14 Gold, Monetary Policy, and Inflation Money and Prices The Gold Standard The Establishment of the Federal Reserve The Fall of the Gold Standard Postdevaluation Monetary Policy Postgold Monetary Policy The Federal Reserve and Money Creation How the Fed’s Actions Affect Interest Rates Stock Prices and Central Bank Policy Stocks as Hedges Against Inflation Why Stocks Fail as a Short-Term Inflation Hedge Higher Interest Rates Nonneutral Inflation: Supply-Side Effects Taxes on Corporate Earnings Inflationary Biases in Interest Costs Capital Gains Taxes Conclusion Chapter 15 Stocks and the Business Cycle Who Calls the Business Cycle?

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The emerging market returned 12.73 percent per year over that period, nearly 3 percentage points higher than the return to U.S. stocks, and U.S. stock returns were less correlated with emerging market stock returns than with EAFE returns. It should be noted that since 1988, EAFE returns have trailed U.S. returns, almost entirely because Japan had negative returns from 1988 through 2012. The Japanese Market Bubble The Japanese stock market in the last quarter of the twentieth century stands as one of the most remarkable bubbles in world history. In the 1970s and 1980s, Japanese stock returns averaged more than 10 percentage points per year above U.S. returns and surpassed those from every other country.

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See also Outperforming the market capitalization-weighted indexes in, 368–371 costs vs. returns in, 366–367 of equity mutual funds, 358–363 fundamentally weighted indexes in, 369–372 informed trading and, 366 insufficient information in, 364–365 introduction to, 357 money managers for, 363–364 passive investing in, 367–368 underperformance of managed money in, 363–365 Fundamental analysts, 311 “Fundamental Indexation,” 371 Fundamentally weighted indexes, 369–372, 376 Fundamentals of economics, defined, 159 Future of stock market valuation, 169–172 Futures contracts, defined, 276 Futures, defined, 276 Futures market, 294–296 GAAP (Generally accepted accounting principles), 150–156 Gaps, 295 Gas producers, 129 GDP (gross domestic product) in 1980–2035, 67 after 2008 financial crisis, 39–42 future of, 64–65 globally, 197 in stock market valuation, 166 General Electric, 106, 115–116, 205 General Food, 129 General Motors (GM), 54–55, 125–126, 182 The General Theory , 309, 377 Generally accepted accounting principles (GAAP), 150–156 GICS (Global Industrial Classification Standard), 120, 203–205 Given before-tax returns, 139 Glass-Steagall Act, 52–53 Glassman, James, 16, 181 Global Industrial Classification Standard (GICS), 120, 203–205 Global investing conclusions about, 206 countries in, 202–203 diversification in, 198–205 economic growth and, 196–198 foreign exchange risk and, 201–202 GDP and, 40–42 international incorporations in, 203 international stock returns in, 199 introduction to, 195–196 as investment strategy, 375–376 market bubbles and, 199–200 private vs. public capital in, 206 sector allocation in, 202–205 September effect and, 330–333 stock risks in, 201–206 Global Wealth Allocation, 371 Globex, 279–280 GM (General Motors), 54–55, 125–126, 182 Goethe, Johann Wolfgang, 105 Goetzmann, Bill, 76 Gold after 2008 financial crisis, 48, 51–52 backing by.

Hedge Fund Market Wizards
by Jack D. Schwager
Published 24 Apr 2012

Therefore, whereas Apple seemed adequately priced based on current earnings (a forward prospective P/E of 16 at the time of the interview), it was screamingly cheap based on Taylor’s estimate of earnings three years forward (a P/E under 5). Investors often make the mistake of equating manager performance in a given year with manager skill. In some instances, more skilled managers will underperform because they refuse to participate in market bubbles. In fact, during market bubbles, the best performers are often the most imprudent rather than the most skilled managers. Taylor underperformed in 1999 because he thought it was ridiculous to buy tech stocks at their inflated price levels. This same investment decision, however, was one of the key reasons why he strongly outperformed in subsequent years when these stocks experienced an extended slide. 1The fund documents required Taylor to give investors a 12-month notice before terminating the fund. 2MSCI Emerging Europe index 1995–2002 and MSCI Global Emerging Markets index 2003–2011. 3“The city” is a small historic section in central London that is the heart of the financial district. 4It is an accounting tautology that the sum of the current account balance and the capital account balance is equal to the change in net reserves.

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The popular perception of the successful global macro manager is a trader who has an ability to forecast major trends in world markets (FX, interest rates, equities, commodities) through skillful analysis and insight. O’Shea emphasizes that his edge is not forecasting what will happen, but rather recognizing what has happened. O’Shea believes that it is very difficult to pick a major turning point, such as where a market bubble will top, and that trying to do so is a losing strategy. Instead, he waits until events occur that confirm a trading hypothesis. For example, he thought that excessive risk-taking during 2005 to 2007 had inflated various markets beyond reasonable levels and left the financial markets vulnerable to a major selloff.

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Staying with his original market expectation would have been disastrous, as both equity and commodity markets embarked on a multiyear rally. The flexibility to recognize that his premise was mistaken and to act on that awareness allowed O’Shea to experience a profitable year, even though his original market outlook was completely wrong. O’Shea believes that the best way to trade a market bubble is to participate on the long side to profit from the excessive euphoria, not to try to pick a top, which is nearly impossible and an approach vulnerable to large losses if one is early. The bubble cycle is easier to trade from the long side because the uptrend in a bubble is often relatively smooth, while the downtrend after the bubble bursts tends to be highly erratic.

Expected Returns: An Investor's Guide to Harvesting Market Rewards
by Antti Ilmanen
Published 4 Apr 2011

Most real-world “arbitrage” opportunities deserve quotation marks because they are only “good deals” that can move against the arbitrageur. With micro-inefficiencies where good substitutes (highly correlated assets) exist, arbitrageurs can put on relative value trades so that some of the risk in arbitrage is hedged. With macro-inefficiencies (say, a market bubble) without good asset substitutes, such hedging is not possible, so the arbitraging of market-level mispricing is risky and unattractive. Arbitrageurs face both the fundamental risk of adverse news and the “noise trader risk” of the possibility that sentiment will make mispricing worse. If arbitrageurs have longer horizons than noise traders, they can be more aggressive and can “ride out” temporary mispricings.

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Shiller’s timing was only slightly off with the second edition which emphasized housing market overvaluation; it came out in 2005, two years before the U.S. real estate bubble burst. Since Shiller’s thinking on this topic is as insightful and influential as anyone’s, I describe his theory on bubbles before discussing some other analyses. Shiller argues that equity market bubbles have four elements:1. Precipitating factors. What gets the bubble started? In the late 1990s, the Internet boom was the most important factor, but other important factors included improving macro-fundamentals (lower inflation and real yields) and the tendency of middle-aged baby-boomers, with high savings rates, to allocate much of their buying to the stock market. 2.

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Other research also confirms that fast credit growth and financial deregulation /innovation are common characteristics of major booms that end in tears. Bubbles have a long, infamous history since the Dutch tulip mania (1637) and the South Sea and Mississippi company bubbles (both about 1720). Wall Street in 1929, Japan in 1989, and global technology stocks in 1999 are the most famous equity market bubbles of the past century. Of course, there are alternative explanations for these high equity prices but the explanations involving purely rational stories, such as time-varying risk premia, are unsatisfactory. Credit and real estate bubbles may be even more detrimental to the real economy than equity bubbles, because the former reside closer to the heart of the financial system and may be harder to detect [4].

War and Gold: A Five-Hundred-Year History of Empires, Adventures, and Debt
by Kwasi Kwarteng
Published 12 May 2014

On 14 December, Pole & Co. stopped payment, which put forty of its correspondent county banks out of business.15 Pole & Co. had been put under pressure by an old-fashioned bank run, when depositors simply withdrew their money from the bank. The bank failures were only the last development of what had been a tumultuous year. The South American mining stocks also collapsed in dramatic fashion. One man caught up in the excitement of the stock market bubble was the young Benjamin Disraeli, a twenty-year-old Jewish adventurer, determined to make a name for himself in literature. The young Disraeli was a mere solicitor’s clerk who eagerly and cynically speculated in South American shares. After the South American republics, which were fighting wars of independence from Spain, had been recognized as sovereign states just after Christmas 1824, there was a huge boom in the shares.

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Disraeli wrote a further two pamphlets, the last of which was entitled The Present State of Mexico. These works were largely fictional accounts of the immense resources which were said to underpin the mining securities. Disraeli fatally borrowed money ‘on margin’ to acquire the stocks, and was £7,000 in debt by June 1825 when the stock-market bubble burst. These debts would hang over his finances for decades.16 Despite the outward show of respectability, it must be remembered that Victorian finance was often a highly speculative affair. The era of the gold standard was also an era when prominent financiers could go bankrupt and, metaphorically at least, lose their shirts.

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Indeed, in February 2009, Time magazine listed the former central banker at number three in their list of ‘25 People to Blame for the Financial Crisis’.5 Yet, even before the memorable events of 2008, some critics had already begun to blame him for overheating the economy. In its August 2005 article, the New York Times accused him of presiding over ‘a stock market bubble that burst’. His attempts to mitigate the collapse of stock prices had led, in turn, to the ‘housing boom’ and to the ‘potential bust’. The Times also pointed to the accumulation of ‘heavy foreign debt’. This had a simple cause: the Federal Reserve ‘drove interest rates so low that Americans borrowed more and saved less’.6 Greenspan’s belief in the efficacy of free markets had led him to a relaxed view of regulation, and to a scepticism about rigid control of economic variables.

In Pursuit of the Perfect Portfolio: The Stories, Voices, and Key Insights of the Pioneers Who Shaped the Way We Invest
by Andrew W. Lo and Stephen R. Foerster
Published 16 Aug 2021

However, each “bubble” candidate is also associated with a recession. Fama thus concludes that large swings in prices are responses to large swings in real economic activity. Since stock prices reflect investor expectations, this evidence is consistent with what we would see in efficient markets. Fama observes that “bubble” rhetoric usually involves stock market bubbles bursting as the result of a correction of irrational price increases. But he notes that historical market price declines tend to be followed by rather quick price increases, wiping out most of the preceding decline, if not all of it. For example, despite Shiller’s 1996 warning to Alan Greenspan about bubbles that led to Greenspan’s famous “irrational exuberance” speech, stock market prices in March 2003, which most people would argue was after the crash of the supposed bubble, were still above those in December 1996.60 Besides these verbal sparring matches with Shiller, Fama has also had well-known debates with his Chicago colleague, the behavioral economist Richard Thaler, 2017 winner of the Nobel Prize in Economics whom Fama personally helped to hire.

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Not only should you avoid investing in stocks in the industry in which you’re employed, since you could face a double whammy by losing your job exactly when your company’s stock is depressed, you might even consider a short position in your Perfect Portfolio to counterbalance that risk. Shiller is personally a market timer. But while his CAPE ratio can be an indicator of when markets may be undervalued or overvalued, he cautions about market timing yourself. It isn’t easy to call the top of a market bubble. Finally, be prepared to consider new financial instruments and products, such as Shiller’s trill idea, that may become available as part of your Perfect Portfolio. Ellis’s Perfect Portfolio As a highly informed spectator to the investment arena for over fifty years, Charley Ellis has witnessed many different players attempting to master the Perfect Portfolio.

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See financial goals Goldman Sachs, Merton Model and, 185 government bonds: first, 7–8; precursor to, 7 Graham, Benjamin, 15, 23, 275 Graham and Dodd Scroll Award, Siegel as winner of, 289 Grant, Ulysses S., Jr., 256 Grantham, Jeremy, 348n46 Great Depression, investment theories and, 15–16 Greece, ancient, derivatives contracts in, 4–5 Greenspan, Alan: Black Monday and, 236–37; as chairman of Federal Reserve, 236–39; irrational exuberance speech of, 237–39 Greenwich Associates, 262–64 Griswold, Merrill, 114 growth traps, Siegel on, 298–300 Grundfest, Joe, 75 Gutfreund, John, 187, 354n56 Hamada, Robert, 157, 342n36 Hammond, Brett, endowment model and, 220–21 Hancock, Peter, 193 Hansen, Lars, 285 Harkness method of education, 256 hedging, Merton on, 182–83 Heller, Walter, 177 Hershey Company, 200 Hicks, John, 15 Hipkins, Josephine Lorraine, 114 Hirshleifer, Jack, 55 Homer, Sidney, 288; bond price volatility and, 211; bond swaps and, 211–12; collaboration with Leibowitz, 206, 208, 209–12; impact of bond return assessment and, 210–11; Leibowitz’s relationship with, 202–3 “In Honor of the Nobel Laureates Robert C. Merton and Myron S. Scholes: A Partial Differential Equation That Changed the World” (Jarrow), 190–91 housing market bubbles, 247, 248–51 housing price index of Shiller and Case, 247–51 Hume, David, influence on Markowitz, 19 Hunt-Lenox globe, 357n59 Hutzler, Morton, 203 Ibbotson, Roger, 46 IBM, growth trap and, 298–99 IBM 7090, first, 341n21 immunization, 213–15 “Index-Fund Investing” (Samuelson), 127 Index Fund of America, 347n46 index funds: attempts at forming, 347–48n46; Black-Scholes-Jensen collaboration and, 146; Bogle on, 128, 129–30, 312–13; correlation structure of, 170; disdain for, 124; Ellis on, 266, 274–76, 277, 279, 318; Fama’s advocacy of, 113; Friedman on, 347n46; introduced by Bogle, 113, 123–25; Malkiel’s advocacy of, 277; Scholes on, 314; Sharpe on, 77, 113, 311; testing of technical feasibility of, 127–28; traditional, exchange-traded funds vs., 136–37; Vanguard Group and (see Vanguard Group) The Index Revolution (Ellis), 274–75 individual investing, institutional investing vs., Leibowitz on, 223 Inside the Yield Book: New Tools for Bond Market Strategy (Leibowitz and Homer), 212 institutional investing, individual investing vs., Leibowitz on, 223 “Interest on Interest” (Leibowitz and Homer), 209–10 interest rates, Fama’s predictability study of, 105–7 intermarket spread swaps, 211 international stocks, Ellis on, 268 Introduction to Mathematical Probability (Uspensky), 25 investing: accessibility of, capital asset pricing model and, 68; dawn of, 1–4; in early 1950s, 23–24; science of, 15–17; speculation vs., Markowitz on, 33–34; time value of money and, 2 Investment Company Act of 1940, 115, 117 Investments (Sharpe), 73 investment theories: Great Depression and, 15–16; of 1930s, 16 investor archetypes, 326–31, 333 Irrational Exuberance (Shiller), 249, 301 irrational exuberance: Greenspan’s speech on, 237–39; origin of term, 239; Shiller on, 236, 249, 301 Ivest Fund, 121–22 James R.

The New Depression: The Breakdown of the Paper Money Economy
by Richard Duncan
Published 2 Apr 2012

—Fed Governor Ben Bernanke1 What a pity that Bernanke did not read Ludwig von Mises instead of Milton Friedman in graduate school! If he had, he would have known that credit creates the boom and that all booms bust. Instead, he was taught that the Great Depression occurred because the Fed made two mistakes: 1. It increased interest rates in late 1928 to slow down the stock market bubble. 2. It did not print money and bail out all the banks when the credit the banks had extended could not be repaid. By putting into practice those mistaken lessons drawn from the Great Depression, Bernanke and his colleagues at the Federal Reserve have brought upon the United States and the world the New Depression.

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The elimination of those imbalances is inevitable, and it still lies ahead. Looking ahead, the rest of the world won’t buy more from the United States. It will buy less. When the United States buys less from other countries, other countries have fewer dollars and so will buy less from the United States. That was one of the lessons from 2001 when the stock market bubble popped and from 2008 when the housing bubble popped. External factors will exacerbate the depression in the United States during the years ahead, not ameliorate it. Vision and Leadership Are Still Lacking The adoption of fiat money permitted the abuse of Keynesian stimulus on a scale that would have horrified John Maynard Keynes, and it opened up possibilities for credit expansion that earlier generations of economists would not have dreamt possible.

The Road to Ruin: The Global Elites' Secret Plan for the Next Financial Crisis
by James Rickards
Published 15 Nov 2016

The Washington Post takes an extremely rigorous approach to guest op-eds. My contribution on complexity theory coming at the height of the crisis was published only after a series of conference calls with Vincent Reinhart, a former monetary economist for the Federal Open Market Committee and expert on market bubbles. Reinhart was acting as a referee for the Post’s editorial board. I discussed my theories with him from a hotel room in Budapest where I was traveling at the time. It was the middle of the night there. I was able to answer his technical queries, and after a few tweaks to words and phrases, the Post published my piece.

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The idea that the Fed should not try to pop bubbles, but instead clean up the mess after they pop, has a long pedigree. Discussion of this approach goes back at least as far as the classic work of Friedman and Schwartz on the origins of the Great Depression. Friedman and Schwartz were critical of the Fed’s decision to raise interest rates in 1928 to cool off a stock market bubble. By raising rates at a time when inflation was not a threat, the Fed induced a recession in 1929, which was a proximate cause of the stock market crash in October of that year. That crash is frequently cited as marking the onset of the Great Depression. Both Alan Greenspan and Ben Bernanke support the Friedman and Schwartz critique.

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If gold and five-year TIPS signal inflation, yields on ten-year Treasury notes should be rising, and prices falling. The opposite occurred. The yield on ten-year Treasury notes collapsed from 5.2 percent on July 6, 2007, to 1.3 percent on July 8, 2016, one of the greatest bond market rallies in history. Hedge funds and institutions lost billions shorting a presumed bond market bubble, while yields kept dropping and prices kept rising to new heights. This price action is a powerful sign of expected deflation and weak economic growth, even depression. Gold and TIPS prices presage inflation. Ten-year Treasuries signal deflation. Which is it? To an efficient-markets economist, markets are never wrong, yet how could these markets be right if they signal opposite outcomes?

Irrational Exuberance: With a New Preface by the Author
by Robert J. Shiller
Published 15 Feb 2000

If all of them had been able to pool their first impressions and discuss these as a group, they might have been able to deduce which restaurant was likely to be the better one. But in this scenario they cannot make use of each other’s information, since they do not reveal their own information to others when they merely follow them. The restaurant story, and the economic theory that underlies it, is not in itself a theory of stock market bubbles. However, it has clear relevance to stock market behavior, and it can provide a foundation for a theory about how rational investors may be led astray.6 According to such a theory, the popular notion that the level of market prices is the outcome of a sort of vote by all investors about the true value of the market is just plain wrong.

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Both of these processes are the ant equivalent of word-of-mouth communication. Kirman shows that if there is randomness in the recruitment process, the experimentally observed phenomena can be explained in terms of a simple epidemic model. Although disease spread and ant behavior are of theoretical interest in our consideration of stock market bubbles, of greatest practical relevance is the fact that epidemic models have been applied by sociologists to predict the course of word-of-mouth transmission of ideas.15 The dynamics of such transmission may mimic that of disease. The formal mathematical theory of epidemics appears, however, to be less accurate for modeling social processes than for modeling disease spread or ant behavior, and it has yet to spawn an influential and successful literature by social scientists.

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We must reform the Social Security system in the direction of making it more like a system that would seem just and humane were it to be implemented within a family—a system that shares risk and that does not leave anyone bearing an inordinate share of the economic burden.16 Monetary Policy and Speculative Bubbles There have been occasions on which tightened monetary policy was associated with the bursting of stock market bubbles. For example, S P E CUL ATIVE VO L ATIL ITY IN A FR EE SOC IETY 223 on February 14, 1929, the Federal Reserve raised the rediscount rate from 5% to 6% for the ostensible purpose of checking speculation. In the early 1930s, the Fed continued the tight monetary policy and saw the initial stock market downturn evolve into the deepest stock market decline ever, and a recession into the most serious U.S. depression ever.

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

Greenspan cemented his status as a guru with unique foresight in the mid-1990s with an intellectually courageous call that the Internet-based New Economy was so fundamentally changing the U.S. economy that the Fed could permit the economy to grow faster than most inflation-fearing economists thought prudent. The result was lower unemployment without higher inflation — and a technology stock market bubble for which Greenspan got substantial blame. But even after that bubble burst, and a recession ensued, the Greenspan Fed managed to get the economy going again by aggressively cutting interest rates — and the United States avoided the misery that followed the bursting of a real estate and stock market bubble in Japan. Bush was right. Greenspan was a rock star — at least at that moment. He had steered the U.S. economy around the Asian financial crisis in 1998, two wars with Iraq, and the September 11 attacks.

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Greenspan’s unwillingness to attack the housing bubble wasn’t only about misreading signs. It also reflected a philosophical view about central banks targeting rising asset prices. In an approach Bernanke backed at the time, Greenspan argued that central banks shouldn’t increase interest rates to attack possible market bubbles because they can’t always distinguish a transitory bubble from a sustainable rise in prices. Simply put, the Fed was as likely to aim at a false bubble and kill economic growth as it was to prevent one from inflating. Greenspan also argued that the central bankers’ other tool — talking investors out of their euphoria — was extremely limited.

Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions
by Dan Ariely
Published 19 Feb 2007

But in the wake of a number of financial crises, from the dot-com implosion of 2000 to the subprime mortgage crisis of 2008 and the financial meltdown that followed, we were rudely awakened to the reality that psychology and irrational behavior play a much larger role in the economy’s functioning than rational economists (and the rest of us) had been willing to admit. It all started from questionable mortgage practices, augmented by collateralized debt obligations (CDOs are securities based mostly on mortgage payments). In turn, the CDO crisis accelerated the deflation of the housing market bubble, creating a reinforcing cycle of decreasing valuations. It also brought to light some questionable practices of various players in the financial services industry. In March 2008, JP Morgan Chase acquired Bear Stearns at two dollars per share, the low valuation resulting from the fact that Bear Stearns was under investigation for CDO-related fraud.

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If such calculators had existed during the last 10 years, maybe much of the mortgage fiasco would have been avoided. Despite my belief in the desire of borrowers to make the right decisions (and to avoid the disastrous outcomes of making wrong decisions), I must admit that even if some of the banks had created better mortgage calculators, it is possible that in the delirium of the housing market bubble, zealous bankers and real estate brokers could still have pushed people to borrow more and more. This is where regulators could have stepped in. After all, regulation is a very useful tool to help us fight our own worst tendencies. In the 1970s, regulators placed strict limits on mortgages. They dictated the share of income that could be used to pay a mortgage, the amount of down payment required, and the proof that borrowers had to show to document their income.

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procedures and, 62–63 mandatory checkups and, 118 patient compliance and, 260–64 placebo effect and, 173–94, 275–78; see also placebo effect price of medical treatments and, 176, 180–87, 190 public policy and spending on, 190 scientifically controlled trials and, 173–76 self-imposed deadlines and, 118–19 helping, thinking about money and, 74, 75 herding, 36–38 self-herding and, 37–38 Heyman, James, 69–71, 136, 336–37 HIV-AIDS, 90 Holy Roman emperors, placebo effect and, 188 Home Depot, 78 Honda, 120, 121 honesty, 195–230 contemplation of moral benchmarks and, 206–9, 213 dealing with cash and, 217–30 importance of, 214–15 as moral virtue, 203 oaths and, 208–9, 211–13, 215 reward centers in brain and, 203, 208 Smith’s explanation for, 202, 214 superego and, 203–4, 208 see also dishonesty Hong, James, 21 honor codes, 212–13 hormones, expectation and, 179 house sales: anchoring and, 30-31 relativity and, 8–9, 19 value in owner’s eyes and, 129, 135, 265–69 housing market: bubble in, 289–90 decreasing valuations and, 265–66, 279 I ice cream, FREE!, time spent on line for, 61 “Ikea effect,” 135 immediate gratification: e-mail and, 255–59 unpleasant medical treatments and, 261–64 imprinting, 25, 34, 43 see also anchoring indecision, 151–53 individualism, 68 thinking about money and, 74, 75 ingredients, exotic-sounding, 164–65 innovation, increased globalization and, 316–18 insurance fraud, 196, 223 insurance industry, 296 punitive finance practices of, 299-301 spreading cost of, 304 interest-only mortgages, 287–88 interferon, 260–64 internal mammary artery ligation, 173–74, 191 inventiveness, 68 IRA (Irish Republican Army), 156–57 Iran, lack of trust in, 214–15 irrational behaviors, xxix–xxx opportunities for improvement and, 240–44 systematic and predictable nature of, xxx, 239 see also specific topics IRS (Internal Revenue Service), 196 J Japan, savings rate in, 109 jealousy, comparisons and, 15–19 Jerome, Jerome K., 273–74 job performance. 320–24 public scrutiny and, 322 relationship between compensation and, 320–21, 322–24 Jobst suit, 192–94 Johnston, David Cay, 204 JP Morgan Chase, 280 judgment and decision making (JDM), xxviii see also behavioral economics “Just say no” campaign, 100, 101 K Kahneman, Daniel, 19, 129 Keeney, Ralph, 264 knee surgery, arthroscopic, 174–76 Knetsch, Jack, 129 Knight-McDowell, Victoria, 277 Koran, 215 L “Lake Wobegone Effect,” 268–69 Latin America, lack of trust in, 214 Lay, Kenneth, 219 learned helplessness, 312–16 experiments on, 312–14 in financial meltdown, 314–16 recovering from, 315–16 Leaves of Grass (Whitman), 40–41 Lee, Leonard, 21, 157–59, 161, 337 legal profession: attempts at improving ethics of, 213–14 decline of ethics and values in, 209–10 Lehman Brothers, 280, 310 leisure, blurring of partition between work and, 80, 81 Leland, John, 122–23 Leo III, Pope, 188 Leonardo da Vinci, 274 Levav, Jonathan, 231–37, 337 Levitt, Steven, xvi Li, Jian, 166–68 Lincoln, Abraham, 177 Linux, 81 List, John, xvi loans: punitive finance practices and, 300–301, 304 see also mortgages lobbyists, congressional restrictions on, 205 Loewenstein, George, 21, 26, 30–31, 39, 89,, 320–21, 337–38 Logic of Life, The (Harford), 291–92 Lorenz, Konrad, 25, 43 loss: aversion to, 134, 137, 138, 148–49 fear of, 54–55 Lost World, The (Crichton), 317–18 loyalty: in business-customer relations, 78–79 of employees to their companies, 80–84 M Macbeth (Shakespeare), 188 Madoff, Bernard, 291 Maier, Steve, 312-13 major, college students’ choice of, 141–42 manufacturer’s suggested retail price (MSRP), 30, 45 marketing: high price tag and, 24–25 hype of, related to satisfaction derived from product, 186–87, 190–91 relativity and, 1–6, 9–10 “trial” promotions and, 136–37 zero cost and, 49–50 market norms, 67–88 companies’ relations with their customers and, 78–80 companies’ relations with their employees and, 80–84, 252–54 doing away with, 86–88 education and, 85 mere mention of money and, 73–75 mixing signals of social norms and, 69, 73–74, 75–77, 79, 214, 250–52 reducing emphasis on, 88 social norms kept separate from, 67–69, 75–76, 77–78 willingness to risk life and, 84 working for gifts and, 72–74 working under social norms vs., 69–72 Maryland Judicial Task Force, 210 Mazar, Nina, 196–97, 206, 219–20, 224, 320–21, 338 McClure, Sam, 166–68 Mead, Nicole, 74–75 medical benefits, recent cuts in, 82 medical care, see health care medical profession: conflicts of interest and, 293, 295 decline of ethics and values in, 210 salaries of, as practicing physicians vs.

Global Financial Crisis
by Noah Berlatsky
Published 19 Feb 2010

Back in June 2005, the Economist published these prophetic words: “Never before have real house prices risen so fast, for so long, in so many countries. Property markets have been frothing from America, Britain and Australia to France, Spain and China. Rising property prices helped to prop up the world economy after the stock-market bubble burst in 2000. What if the housing boom now turns to bust?” These frothy property prices were fuelled by a combination of low interest rates, loosening lending standards, growing consumer appetite for debt and extensive use of securitisation [pooling and repackaging], which effectively allowed home buyers to access capital from all around the world. 87 The Global Financial Crisis It has been estimated that from 2004 to 2006, more than 20% of new US mortgages were taken out by “subprime” borrowers with poor credit histories and limited capacity to service their loans.

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See Liquidity crises Cato Institute, 202–203 “Celtic Tiger” phenomenon, 94 Charitable agencies, 76–77, 123– 124, 137 Chauzy, Jean-Philippe, 133–134 Chávez, Hugo, 184 Index Chile, 161–162 China, 22–26, 65–71, 108–120, 135–142, 143–149 blames U.S. policies for crisis, 22–26 could use crisis to become responsible world power, 143–149 crisis may worsen poverty, 135–142 economic growth and success, 136–137, 144, 145 G-20 role, 145, 146 investment, U.S., 18, 24, 144, 147 migrant workers, 110, 116, 130 must join with U.S. to control crisis, 65–71 stimulus packages, 19, 135, 140, 141–142, 144–145 trade with Africa, 195 trade with U.S., 65, 66, 70–71, 144, 147 unrest, 19, 25, 108–120, 139– 140 Clearinghouse regulations, 49–50 Climate change policy, 26, 163 Collateralized debt obligations (CDOs), 50, 88 Colombia, 161–162, 180, 182, 183, 184 Common Cause, 205–206 Communist Party, China, 110, 114–116, 139–140 Comparative advantage, 192–193 Competitiveness, financial, 48–49 Congress business subsidies, 202, 203, 204, 205–206 hearings, 175 predatory lending, 206 protectionism and trade agreements, 181, 182, 184 Construction industry, 34, 130, 131, 133 Consumer confidence, 63, 91, 100, 208, 213, 216 Corporate welfare, 201, 202–206 See also Bailouts Cox, Pamela, 158–159 Credit default swaps (CDSs), 17, 28, 29, 50, 175–176, 215 Credit derivatives. See Derivatives Credit markets bubble/freezes, 34–35, 208, 211, 212 securitization’s effects, 56, 82, 89–90 Credit ratings, national, 94, 95, 100 Credit risks, 17, 28 See also Derivatives Currency instability, 59–64, 103, 106, 118 Czech Republic, 99 D Daremblum, Jaime, 180–185 Darling, Alistair, 113, 222 David Rockefeller Center for Latin American Studies, 158 Davos, Switzerland World Economic Forum, 2009, 22–26, 113 Debt relief, 193, 198–199 Defaults, mortgages, 34 Deflation Europe, 97–98, 99 Federal Reserve avoidance measures, 41 Japan, 209, 215 Dembele, Demba Moussa, 186– 200 Denmark, 95 Dennis, Felix, 60 251 The Global Financial Crisis Deposit insurance, 150, 154, 208– 209, 213, 214, 229 Deposit Insurance Corporation of Japan, 208–209, 210, 218 Deposits.

Arguing With Zombies: Economics, Politics, and the Fight for a Better Future
by Paul Krugman
Published 28 Jan 2020

The columns in this section describe the growing fear I and others felt that something was going terribly wrong, and the wall of misconception we had to climb when the things we feared might happen, did. The question then became what to do. But more about that in the next section. RUNNING OUT OF BUBBLES May 27, 2005 Remember the stock market bubble? With everything that’s happened since 2000, it feels like ancient history. But a few pessimists, notably Stephen Roach of Morgan Stanley, argue that we have not yet paid the price for our past excesses. I’ve never fully accepted that view. But looking at the housing market, I’m starting to reconsider.

…

Many home purchases are speculative; the National Association of Realtors estimates that 23 percent of the homes sold last year were bought for investment, not to live in. According to Business Week, 31 percent of new mortgages are interest only, a sign that people are stretching to their financial limits. The important point to remember is that the bursting of the stock market bubble hurt lots of people—not just those who bought stocks near their peak. By the summer of 2003, private-sector employment was three million below its 2001 peak. And the job losses would have been much worse if the stock bubble hadn’t been quickly replaced with a housing bubble. So what happens if the housing bubble bursts?

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.: and balanced budget, 107 on health care, 46 and reciprocal trade act, 247, 250, 252, 254 and Social Security, 25, 26 Roosevelt, Theodore, 239 Roosevelt (FDR) administration, and international trade, 244 rule of law: disdain of, 252, 256, 301, 347 interpretation and enforcement of, 367–68 rules for research, 399–404 dare to be silly, 401–2, 404 listen to the gentiles, 399–400, 404 question the question, 400–401, 404 simplify, simplify, 402–4 Russia, and trade, 256 Ryan, Jack, 381 Ryan, Paul, 28, 203, 219, 363 as flim-flam man, 194, 195–97, 362 and Medicare, 225 and Ryan plan, 193–94, 195–97, 201–2 super PAC of, 225 Saez, Emmanuel, 219, 234–35, 236, 238–39 safety-net programs, 4, 224, 313, 317, 320, 321, 323, 370 Samuelson, Paul, 124, 403, 407, 408, 410 San Diego, housing in, 87 “sand states,” unemployment in, 170 Santorum, Rick, 303 Sawhill, Isabel, 280 Scaife, Richard Mellon, 380 Schultz, Howard, 212, 308, 310 Schumer, Chuck, 93 Schumpeter, Joseph A., 132, 134, 395 Schwartz, Anna, 133 SeaWorld, 352 secular stagnation, 206 Securities and Exchange Commission, 93 segregationists, 346 Seltzer, Marlene, 166 Senate, role of, 368 September 11, 2001, attacks, aftermath of, 13 Sessions, Pete, 59 Shapiro, Ben, 354, 355, 356, 357 Shiller, Robert, 84, 136, 141, 146 Shleifer, Andrei, 146 Sicko (movie), 44–45 silver and gold coins, 411, 412 “silver-loading,” 71 Simple Art of Murder, The (Chandler), 327 Simpson, Alan, 198, 199, 203, 218 Sinema, Kyrsten, 365 “Skewing of America, The” (Krugman), 259–60 “skills gap,” 159, 166–68, 290 Slemrod, Joel, 277 Smith, Adam, 132, 138, 411 Smith, Noah, 95 smoking, dangers of, 333, 334 Smoot-Hawley Tariff Act (1930), 247 snake oil, peddling, 357 Snow, John, 81 social democracy, 313–14, 317, 320–21, 323 social dysfunction, indicators of, 286 socialism, 219, 313–14, 316, 319–21, 322–24 social justice, 3 social media, see media Social Security: cuts in benefits, 17, 32 expansion of, 30, 32, 212, 240 financial condition of, 16–17, 20, 28–29 guaranteed benefits of, 24 historic success of, 21, 22, 24, 31–32 importance to voters, 14, 26, 31, 306 as independent entity, 20 “Life Expectancy for Social Security” (Web site), 26 percentage of revenues going to benefits, 22 politicization of, 25–27 privatization of, 14–15, 19–21, 22–24, 25–27, 28–29, 32, 35, 302, 306, 361, 377, 378 retirement age for, 199 supported by dedicated tax on payroll earnings, 19 threats to, 16–18, 198, 199, 200, 223, 224 Trump administration’s lies about, 225 trust fund of, 20 Social Security Act (1934), 26 Solow, Bob, 396, 405 Soros, George, 345, 346, 365 Soviet Union: central planning by, 323 economy of, 324 fall of, 177 Spain: anti-establishment forces in, 99 economy of, 178–80, 184 and euro, 177, 178–79, 181, 187, 188 housing bubble in, 181 internal devaluation in, 179 loans to, 182 public debt of, 179 unemployment in, 182, 184 speculation: destructive, 135 short-term, 133 stagflation (1970s), 124, 133 Stalin, Joseph, 239, 324 “State of Macro, The” (Blanchard), 130 statistics, uses and abuses of, 262 Stein, Herbert, 271 Stiglitz, Joseph E., 5, 396–98, 403 “Stimulus Arithmetic” (Krugman), 104, 113–14 stock market bubble, 83, 84, 86 Stokes, Leah, 305, 306 Stone Center for the Study of Socioeconomic Inequality (CUNY), 259 Stross, Charlie, 357 sugar, import quotas on, 250 Summers, Larry, 136, 145–46 “Sum of All Fears, The” (Krugman), 81 supply-side economics, 128, 275–76, 299 Supreme Court, U.S.: on Affordable Care Act, 65, 68, 77 Kavanaugh appointment to, 345, 346, 352 moral authority destroyed, 345, 360 partisanship in, 346 sustainable growth rate, 153–54, 204 Sweden, economy of, 239, 323 Switzerland, health care in, 37 system overhaul, 210, 212 tanning parlors, tax on, 211 tariffs, 244, 246–48, 251, 252–53, 254–56 taxes: carbon tax, 339 corporate, see corporate taxes cutting, 8, 16–17, 19, 20, 116–17, 199, 201, 215–17, 218–20, 224–26, 227–29, 230–33, 231–33, 232, 236–37, 306–7, 351, 361, 370, 371 and debt, 154, 222–23, 224–26 economic effects of, 7, 222–23, 224–26, 233, 236–37 incentive effects of, 154 and income inequality, 238–39 low, 315 on middle class, 221–23 and monopoly power, 236 narrow-gauge, 211 optimal top rates of, 234–35 on payroll, 212 political trade-offs in, 153 on pollution, 339 progressive taxation, 238–40, 323 raising, 185, 196, 199, 219, 229, 380 tariffs, 244, 246–48, 251, 252–53, 254–56 temporary breaks, 222 top marginal income tax rates, 236–37, 236 Trump’s frauds, 348–50 value-added, 154, 212 on the wealthy, see wealthy on working class, 20, 221–23 tax evasion, 349–50, 413, 414 tax liabilities, 414 tax loopholes, 93, 349 Tax Policy Center, 196, 202, 283 tax reform, 26, 198–99 Tea Party, 53–54, 303 technology, and income inequality, 260, 288–90 Tennessee, health care in, 68 tethering, 413–14 Thatcher, Margaret, 22, 23, 128 “That Eighties Show” (Klugman), 124 “Theoretical Framework for Monetary Analysis, A” (Friedman), 144 Thompson, Fred, 47, 52 tobacco companies, 333, 334 Toles, Tom, 333 torture, 300 totalitarianism, 324 trade theory, 399–400, 401, 403 trade war, 353, 361, 371–72 see also international trade transcription costs, 411–14 transportation, greenhouse gases from, 339–40 Treasury, U.S.: on income gains, 279–81 Office of Tax Analysis, 278 partisan functions of, 26 and Social Security, 16 Trichet, Jean-Claude, 161 “Triumph of Macroeconomics, The” (Krugman), 103–5 Trotsky, Leon, 324 trucking industry, 290 Trump, Donald: attacks on media by, 347 attitude toward truth, 364–66 belligerent ignorance of, 246, 307, 337, 345, 346–47, 352 campaigning, 309, 370 contempt for rule of law, 252, 256, 347 corruption of, 335–37, 338, 343, 349, 350, 368, 389 and cronyism, 256, 343 as deal-maker, 348–50 election of (2016), 13, 343, 372, 375, 387–89 family history of, 348–49 foreign dictators admired by, 346–47, 365, 371 humiliating others, 352–53 and inequality, 260, 291 and international trade, 245, 246, 247–48, 249, 252–53, 254–56, 353, 361 laziness of, 352 as liar, 348, 353, 364, 365 on manhood, 370, 371, 372 on neo-Nazis as “very fine people,” 365 and populism, 351–53 and racism, 246, 310, 360 and Republican Party, 335–37, 359, 372 scandals about, 388–89 and socialism, 322–23 State of the Union address (2019), 207–9, 322 supporters scammed by, 353, 372, 389 and taxes, 216, 221–23, 224–26, 227–29, 230–33, 306–7, 308, 350, 361, 371 tax returns of, 359 tough-guy posturing by, 334, 346–47, 370–72 and 2020 election, 227, 347, 361 and the wall, 370, 371 Trump, Fred (father), 348 Trump administration: anti-science views of, 332 as anti-worker, 351–53 appointments to, 352 bad faith of, 151, 332, 365 charlatans and cranks in, 149, 151, 329, 331, 333 climate change deniers in, 329–31, 332–34, 335–37 and collapse of freedom, 187 compared to that of G.

A Failure of Capitalism: The Crisis of '08 and the Descent Into Depression
by Richard A. Posner
Published 30 Apr 2009

Indeed that is probably the main cause of bubbles. A stock market bubble developed in the 1920s, powered by plausible optimism (the years 1924 to 1929 were ones of unprecedented economic growth) and enabled by the willingness of banks to lend on very generous terms to people who wanted to play the stock market. You had to put up only 10 percent of the purchase price of the stock; the bank would lend the rest. That was risky lending, since stock prices could and did decline by more than 10 percent, and explains why the bursting of the stock market bubble in 1929 precipitated widespread bank insolvencies.

Hedgehogging
by Barton Biggs
Published 3 Jan 2005

I also recall all too well the ag- ccc_biggs_ch09_119-132.qxd 11/29/05 7:02 AM Page 125 The Violence of Secular Market Cycles 125 onizing, extended hangover from the secular bear market of the early 1970s. The U.S. equity market wandered up and down in a relatively narrow range for years. What itches uncomfortably in the back of my mind is that the stock market bubble in the United States and the rest of the world in the 1990s had more pervasive excesses than most of the bubbles that preceded earlier busts. Nevertheless, so far we haven’t had anywhere near the distress of the late 1970s or the pain that Japan has experienced. Even after the rally in 2005, Japanese equities are still down 70% from their peak.

…

Look at Figure 9.2, a chart of price to book in Japan.The roaring bull market and then the craziness of the bubble took the price to book ratio to over five times; now almost 15 years later, it has fallen to 1.5 times, which is about where it started way back in 1975.At the peak in 2000, the United States also sold at almost five times book.Today it is about 2.9 times. BULL MARKETS AND BUBBLES IN JAPAN VERSUS THE UNITED STATES However, there are some important differences between the secular bull markets in the United States and Japan.The United States in 2000 was primarily a stock market bubble bursting, and it wiped out a lot of wealth and caused a recession.The Japanese bubble also involved commercial real estate as well as equities, and the U.S. bubble didn’t. Japanese real estate by 1990 had reached utterly ridiculous levels. For example the Imperial Palace grounds alone had a value in excess of all ccc_biggs_ch09_119-132.qxd 126 11/29/05 7:02 AM Page 126 HEDGEHOGGING FIGURE 9.2 Price-to-Book Japan Busted Bubbles Are Symmetrical MSCI Japan Price-to-Book Ratio: January 1975–May 2003 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 1975 1980 1985 1990 1995 2000 Source: Traxis Partners Quantitative Research, MSCI the real estate in the state of California.

…

In fact, the U.S. economy was the beneficiary of an unprecedented dose of fiscal and monetary stimulus, and there is no question that these moves averted a more serious recession—for now.Whether they averted or merely delayed the inevitable retribution remains to be seen. THE SECULAR BEAR MARKET OF 1969–1974 I am trying carefully to point out the differences between the experience of Japan and the United States. None of this is to argue that the United States didn’t have a stock market bubble, and that there wasn’t massive speculation and fraud. The United States definitely has had a secular bear market in equities with three down years in a row. What concerns me is that this bear market doesn’t seem as severe or its aftermath as extended as the secular bear market this country had from 1969 to 1974, which is why I wonder if this one may be incomplete.

Unknown Market Wizards: The Best Traders You've Never Heard Of
by Jack D. Schwager
Published 2 Nov 2020

But before we discuss that, I want to go back to the CTA because I skipped over a pivotal part of the story. It was while I was running the CTA that I discovered the COT (Commitment of Traders) report. I was being a contrarian trying to short the stock market during the second half of 1999 because it had all the typical signs you see in a market bubble—the proverbial shoeshine-boy-giving-you-stock-tips euphoria. I knew it was a short, but the NASDAQ went up another 50% between August and January. I did a good job with risk management because, even though I was shorting stock futures, I didn’t lose any money since I was making money elsewhere, and I was cutting my losses quickly.

…

So now, when you analyze markets, how far back do you go? As far as I can. Which means what? At the moment, about 100 years—but, ideally, I would like to go back well beyond that. Reading is part of my research. One book that I read recently is Devil Take the Hindmost: A History of Financial Speculation by Edward Chancellor. That book talks about market bubbles going all the way back to tulipmania. Is that a good book? It’s fantastic. It’s a book that can help you develop the kind of broader historical perspective of markets and speculation that Dalio talks about. Were there any other insights that you got from your lunch with Dalio? It was valuable to understand how Dalio thought about expected value.

…

As soon as the five years were up, they were free to sell their home and buy a farm. They were very lucky. If the requirement had been six years instead of five, the story would have ended very differently. Your Black Monday was our Black Tuesday. The 1987 crash in the US was the event that popped the New Zealand stock market bubble. Within six months, the stock market was down 50%. It didn’t recover to the old highs for over 20 years. What percent profits did your parents make on their investment? I don’t know, but the New Zealand market went up sixfold, and they sold within a half-year of the high. So, I would guess they at least tripled their money.

Crapshoot Investing: How Tech-Savvy Traders and Clueless Regulators Turned the Stock Market Into a Casino
by Jim McTague
Published 1 Mar 2011

The old Fred Schwed saw, Where Are the Customer’s Yachts?, resonated as loudly with investors in 2010 as it did when he first published his classic Wall Street book of the same title in 1940.1 The particular thrashing that engendered the sweeping market reforms of 2005 took place in 1969 and 1970 when a stock market bubble burst and the consequent bear market slashed into Wall Street’s brokerage profits, exposing the undercapitalized positions of more than 100 brokerage firms.2 This massive collapse of so-called “white shoe” firms marked the first significant catastrophe for Wall Street since the Great Depression, and it was a wakeup call for Congress that the New York Stock Exchange (NYSE) and its regulator, the Securities and Exchange Commission (SEC), were not on the ball.3 The capital crisis was part of a one-two punch.

…

, resonated as loudly with investors in 2010 as it did when he first published his classic Wall Street book of the same title in 1940.1 The particular thrashing that engendered the sweeping market reforms of 2005 took place in 1969 and 1970 when a stock market bubble burst and the consequent bear market slashed into Wall Street’s brokerage profits, exposing the undercapitalized positions of more than 100 brokerage firms.2 This massive collapse of so-called “white shoe” firms marked the first significant catastrophe for Wall Street since the Great Depression, and it was a wakeup call for Congress that the New York Stock Exchange (NYSE) and its regulator, the Securities and Exchange Commission (SEC), were not on the ball.3 The capital crisis was part of a one-two punch. The first punch was an embarrassing paperwork fiasco in 1968. Brokerage houses were overwhelmed by an unexpected influx of new customers at the zenith of a stock market bubble. The newcomers, expecting to get rich quickly, invested heavily in smaller, highly speculative stocks. The enthusiastic crowd drove trading volume to record highs, and the back rooms of the brokerage houses, where trades were settled manually, simply could not keep up with the flood of paperwork.

Borrow: The American Way of Debt
by Louis Hyman
Published 24 Jan 2012

Historians today do not believe that overextension of installment credit caused the Great Depression—they don’t even discuss it as a viable possibility—but to those who lived through the Great Depression, installment credit’s role was more certain.36 Installment credit, in this view, was akin to the speculative credit that had fed the stock market bubble. The “artifice” of installment credit attracted much blame. In 1932, for example, a Johns Hopkins economics professor identified credit among the three main causes of the Depression: “perversion of the stock exchanges,” “degradation of banking,” and “reckless installment selling.”37 He argued that by hampering savings, America’s installment credit “retard[ed] the growth of its productive capital” and “morally … it loosened the restraint upon recklessness in optional expenditures.”

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By enabling the demand for goods that consumers could not otherwise afford—or worse, for which they could budget installment payments but refused to save—installment credit encouraged overinvestment in productive capacity, which could be made profitable only by what The New York Times called the “continuing and increasing doses of the [installment credit] stimulant.”38 Unearned and not quite real, this “artificial stimulus” smacked of excess. As in the stock market bubble, there was only a symbolic value, not a real one. The shocking experience of the crash emerged from the economy’s very unreality. As the undersecretary of the Treasury wrote in 1932, the “sweeping decline was … inevitable” because “the country was living too much on credit.”39 The director of the Federal Reserve Bank of St.

Who Needs the Fed?: What Taylor Swift, Uber, and Robots Tell Us About Money, Credit, and Why We Should Abolish America's Central Bank
by John Tamny
Published 30 Apr 2016

See federal government Corker, Bob, 43 credit and access to real resources, 2, 3, 47 already possessed by individuals, 22, 163 Ben Bernanke and “crony credit,” 41–47 coaching and recruiting of college athletes, 15–21 “credit circles,” 107 credit surges, 58 and division of labor, 66 and Donald Trump, 33–37 and excessive federal government spending, 51, 53–55, 59–63 failures as credit in Silicon Valley, 27–32 and the fracking boom, 66–67, 73–75 housing boom and “easy credit,” 113–22 inability of government to create, 81–82 and Keynesian economics, 78–82 lack of in Soviet Union, 76–78, 80 Lending Club, 107–8 and market “bubbles,” 56–60 oil price declines and rising cost of credit, 146–48 Paulson & Co., 44–45 personal “recessions” and access to credit, 25–26 produced by individuals in the real economy, 3 and supply-side economics, 48–55 See also banking; the Fed A Curious Mind (Grazer), 23 Da Sweet Blood of Jesus (film), 110 Dead Bank Walking (Smith), 164 “death of distance,” 58 Decade of Greed, 33 Dell computers, 109, 125 Dell, Michael, 60 demand as result of production and growth, 140–41, 149 Detroit, Michigan, 99, 140 devaluation, housing booms and value of the dollar, 116–22 Dierdorf, Dan, 16 Dobbs, Lou, 160 the dollar and bank cash reserve requirements, 100 FDR’s devaluation of, 142, 167–69 fluctuating value of, 167–72 gold standard and the price of oil, 68–70 housing booms and value of the dollar, 116–22 inflation and value of the dollar, 43 “money multipliers” and “fractional lending,” 87–90 money supply and value of the dollar, 144 Downey, Robert, Jr., 25–26 Drexel Burnham investment bank, 38–40 Economics in One Lesson (Hazlitt), 22, 64, 74, 113, 163, 176 economy Austrian School of economics, 79, 87, 88–89, 90, 91–95, 113–14, 141 as collection of individuals, 25, 128 economic growth as Cheap Revolution, 160–61 governmental barriers to economic growth and prosperity, 3, 155–56 Keynesian economics, 78–82, 88, 93–96, 140–41 market forces, 1–2, 59–60 production and money supply, 136–37 and quantitative easing (QE) program, 149–54 the real economy and government spending, 4 resource expansion resulting from surprise, 30 robots and job creation, 177–80 supply-side economics, 48–55, 79–80, 92–94, 141, 144 The Economy in Mind (Brookes), 49 Edison, Thomas, 29–30 electricity, Tennessee Valley Authority (TVA), 61 The Elephant and the Dragon (Meredith), 96 Ellison, Larry, 60 entrepreneurs and failure, 28 and innovation, 66 and price cutting, 73 ESPN, 109 Eton Park Capital, 45 Export-Import Bank (Ex-Im), 61 Facebook, 28–29, 143 FailCon, 27 failure as credit in Silicon Valley, 27–32 as feature of capitalism, 58, 89, 100, 125 and innovation, 57–58 Fairchild Semiconductor, 31 Fannie Mae, 119, 120, 173 federal budget deficits, 50 Federal Deposit Insurance Corporation (FDIC), 101–2 federal government excessive spending of, 51, 53–55, 59–63, 173–74 involvement with Wall Street, 129–31 and Keynesian economics, 78–82, 93–96, 147 money supply and value of the dollar, 144 size of, 50–51 the Fed (Federal Reserve Bank) and access to credit, 13–14, 31–32 as barrier to economic growth and prosperity, 5 and Ben Bernanke, 41–47 creation of, 105–6 and easy credit, 2–5, 36–37, 80, 146–48 and excessive power of central banks, 45–46 and high-yield “junk bonds,” 37, 39–40 housing boom and “easy credit,” 113–16, 121–22 inability to create credit, 1–5, 141 on inflation as source of economic growth, 156–61, 165–66 interbank lending rates, 114–16, 156–58 and the money supply myth, 138–45, 158 necessity of, 163–66 quantitative easing (QE) program, 149–54, 172 and the Roaring Twenties, 94–95 Troubled Asset Relief Program (tarp), 172–73 and 2008 financial crisis, 106, 110 Fergusson, Adam, 90–91, 121 film industry and credit extended to filmmakers, 22–26, 27–28 The Financial Crisis and the Free Market Cure (Allison), 119 Flamson, Dick, 35, 101 football players and coaches, 15–21, 78–79 Forbes, Steve, 69, 72 The Forgotten Man (Shlaes), 167–69 The Frackers (Zuckerman), 71 fracking boom, 66–67, 73–75 “fractional lending,” 87–90 Freddie Mac, 119, 120, 173 free markets, 2–3, 11–14 free trade and division of labor, 65–66 Friedman, Milton, 54, 135–36, 137, 138 Frum, David, 117–18 Garrett, Mike, 19 Gates, Bill, 30–31, 59 Geithner, Tim, 171 General Electric, 30 Get on Up (film), 25 Gilder, George, 30, 56, 57, 59, 68, 94, 118, 121, 135–36 Giuliani, Rudolph, 38 Glass-Steagall Act, 102–3, 119–20 Globe.com, 59, 60 gold and devaluation of the dollar, 142, 167–68 and the price of oil, 68–72 Gold (Lewis), 141, 171 Goldman Sachs, 41, 44, 45, 46, 127 Google, 143 Gorman, James, 123, 130 government.

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See federal government Gray, Freddie, 135 Grazer, Brian, 22–23, 24–25, 26 Great Depression, 106, 141–43, 147, 168 The Greatest Trade Ever (Zuckerman), 45, 120 Greenspan, Alan, 119, 120, 164 Greider, William, 121 Griffin, Ken, 41 Guest, Christopher, 22 Guillies, Wendy, 175 Hamm, Harold, 73 Hanks, Tom, 22 Hannah, Daryl, 23 Harbaugh, Jim, 16–18, 20, 21, 79, 103, 127 hard assets, 118 Harford, Tim, 32, 64–65 Hartnett, Josh, 24 Hastert, Dennis, 52 Hawaiian Airlines, 34–35 Hawn, Goldie, 24 Hayward, Steven, 49, 50 Hazlitt, Henry, 22, 64, 74, 113, 163, 176 Heaven Can Wait (film), 23 hedge-fund managers, 48 Heller, Walter, 54 Hemingway, Ernest, 91 Hendrickson, Mark, 80 high-yield “junk bonds,” 37–40, 126 Hilsenrath, Jon, 147, 148 Hoffman, Dustin, 23 Hoke, Brady, 16, 20–21, 78–79, 103, 115, 127, 128, 148 Hollywood Shuffle (film), 109 Hoover, Herbert, 142, 168 Hoover Institution, 102 housing booms and “easy credit,” 113–22 and value of the dollar, 116–22 housing market and mortgage-backed securities, 150–52 Howard, Ron, 22–23 How We Got Here (Frum), 118 Human Action (von Mises), 20 Humphrey-Hawkins Full Employment Act, 165 hyperinflation in post-WWII Germany, 90–91 IBM, 53 Imagine Entertainment, 22–23 inflation Friedman’s view of, 136 inability of Fed to control, 159–61, 165 and value of the dollar, 43 inherited wealth, 29–30 initial public offering (IPO), 29, 124 innovation and definitions of success or failure, 29–30 and entrepreneurs, 66 and failure, 57–58 The Innovators (Isaacson), 31 insider trading, 38 Inside the Nixon Administration (Burns), 170 Intel, 143 intellectual property rights, 9–10 interest rates and the cost of credit, 1–3, 13–14, 47–48, 147 and the Fed on inflation as source of economic growth, 156–61, 165–66 housing boom and “easy credit,” 113–16, 120–22 and quantitative easing (QE) program, 149–51 Internet banking, 108, 111 Internet “bubble,” 57–58 Internet job creation, 178–79 investment banking, 123 Iron Man (films), 25 Ishtar (film), 23 Jagger, Mick, 25 James, LeBron, 137–38 Japan after World War II, 128 Bank of Japan and Nikkei index, 152, 159 job creation and robots, 176–80 Jobs, Steve, 30–31 Johnson, Lyndon B., 49, 53 Johnson, Mark, 153 Jones, Jesse, 167 “junk bonds,” 37–40, 126 Kalanick, Travis, 12, 13 Karlgaard, Rich, 160 Kashgar, 138 Kauffman Foundation, 175 Keaton, Diane, 24 Kelly, Jason, 126 Kennedy, John F., 49–50, 169 Kennedy, Robert F., 34 Keynesian economics, 78–82, 88, 93–96, 140–41 Keynes, John Maynard, 78, 147 Kickstarter, 110 Kiffin, Lane, 20 Kinski, Nastassja, 24 Knowledge and Power (Gilder), 57 Kohli, Shweta, 107 Kohn, Donald, 156 Kornbluth, Walter, 22 labor as credit, 15–21 Laffer, Arthur, 55, 137, 157, 158 Laffer curves, 50, 54–55 Lawrence, Jennifer, 37–38 Lee, Spike, 109, 110 Lending Club, 107–8 Leubsdorf, Ben, 156 Levy, Eugene, 22 Lewis, Nathan, 72, 137, 141–42, 144 LewRockwell.com website, 94 Lisa computer, 30 Lombard Street (Bagehot), 46 Luck, Andrew, 16–17 McAdams, Hall, 89–90, 104 McConnell, Mitch, 51 Mack, John J., 123, 130 Madoff, Bernard, 163 Mann, Windsor, 78 Margolis, Eric, 94, 96 market “bubbles,” 56–63 market forces and government spending, 59–60 price of goods versus price of dollars, 1–2 von Mises on, 20, 152 market intervention and the Fed, 159–61 Mazursky, Paul, 24 Medicare, 53, 78, 174 Merrill Lynch, 120 Metro public transit, 10–11 Meyer, Urban, 17–18 Microsoft, 30–31, 125, 143, 155 Milken, Michael, 38–40, 114, 126 Mill, John Stuart, 76 Mindich, Eric, 45–46 Mission Asset Fund, 107 mobile phones, 53–54 monetarism, 135–36, 138 money and Chinese economy, 135–36, 137 and economic activity, 3, 136–37, 140, 143 and gold standard, 68 and the Great Depression, 141–43, 147, 168 market monetarism, 138–39 as measure of wealth, 67–68 monetarism, 135–36, 138 “money multipliers” and “fractional lending,” 87–90 private money supplies, 144–45 and stable currency, 137, 144 Money and Foreign Exchange After 1914 (Cassel), 119 Moore, Gordon, 31 Moore, Stephen, 50–51 Morgan, J.

Global Governance and Financial Crises
by Meghnad Desai and Yahia Said
Published 12 Nov 2003

Thus, the overvalued currencies became attractive targets for speculative attacks, resulting in the futile, but costly defences of the Thai baht and Malaysian ringgit, and the rapid regional spread of herd panic termed contagion. The resulting precipitous asset price collapses – as the share and property market bubbles burst – undermined the East Asian four’s heavily exposed banking systems, for some (e.g. Malaysia), for the second time in little over a decade, undermining financial system liquidity, and causing economic recession. Undoubtedly, international financial liberalisation succeeded in temporarily generating massive net capital inflows into East Asia, unlike most other developing and transitional economies, some of which experienced net outflows.

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Notes The percentages written in the graph are average annual rates of growth (the figure for Chile refers to 1975–80). 1, Chile; 2, Mexico; 3, Brazil and 4, Korea. 130 Gabriel Palma A similar argument can be advanced for Mexico; although economic reforms and NAFTA can, from the average investor’s point of view, justify some life in the Mexican stock market, a 15-fold surge belongs to a different story – one of a typical Kindlebergian ‘mania’. Again, the subsequent panic and crash are part of the same story.20 As mentioned previously, Malaysia and Thailand did follow ‘route 1’ countries in this respect, but their stock markets’ bubbles were small in comparison with those of Chile or Mexico even if one compares the change between the lowest quarterly point in these countries indices vis-à-vis the highest one – in Malaysia the increase is 6-fold (between the second quarter of 1988 and the fourth quarter of 1993), while in Thailand the corresponding jump is 5.4-fold (between the first quarter of 1988 and fourth quarter of 1993).

The Rise of Carry: The Dangerous Consequences of Volatility Suppression and the New Financial Order of Decaying Growth and Recurring Crisis
by Tim Lee , Jamie Lee and Kevin Coldiron
Published 13 Dec 2019

We return to the example of Turkey again, in more detail, in the following chapter. The Turkish carry trade has been principally dollar funded. But the currency carry trade is not, and has not been, only about the dollar-funded carry trade. Japan, following its financial bust after the Japanese real estate and stock market bubble burst at the beginning of the 1990s, was the first country to experience ultra-low, or near-zero, interest rates. In the earlier years of the rise of the currency carry trade, it was very much the yen-funded carry trade that was dominant. The notion of a carry crash suggests collapsing values of high-yield bonds and currencies and soaring volatility.

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The cumulative advantage of the most respected venture firms means that the companies they back gain favorable publicity and become more credible to potential employees, customers, and other investors—and thus have a major head start in the race to dominate their niche. Cumulative advantage is the best kind of skill. Cumulative Advantage Is What Perpetuates Itself Cumulative advantage is implicated in all forms of fads, fashions, crazes, trends—even market bubbles. As illustrated by the example of movie stardom, cumulative advantage is behind “superstar effects” across all cultural products: music, books, success as a “public intellectual,” and more. Cumulative advantage is likely behind the virulence of modern social media—Twitter mobs, disinformation, polarization—where visible numbers of likes, shares, and retweets show us collectively what is right (or safe) to say (or think), and thereby produce powerful feedback effects.

Cogs and Monsters: What Economics Is, and What It Should Be
by Diane Coyle
Published 11 Oct 2021

The biggest—Alphabet (Google), Amazon, Apple, Facebook, Microsoft—became even more successful as the pandemic moved so much more activity online. The way digital is reshaping our economic and social lives has been my focus since the 1990s. In fact, it was an experience as a new reporter on The Independent newspaper in 1994 that triggered a lasting interest. The technology stock market bubble had not yet happened, so nobody more senior on the business desk was interested in covering the flotation through a stock market IPO of a small technology company from Cambridge called Unipalm. It was the UK’s first commercial internet service provider. I wasn’t sure what that was, but dutifully went along to the hotel suite the company’s PR firm had rented for the roadshow demonstration to investors and financial journalists.

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P., 49 Snower, Dennis, 159 socialist calculation debate, 182–88, 190, 209 social media, 52, 73, 82, 140–41, 149, 157, 163, 173, 176–77, 195 social security, 146 social welfare function (SWF), 122–23 software, 25, 140, 155, 171, 177–78, 186, 197, 200–201, 203 Solow, Robert, 169 Soulful Science, The: What Economists Really Do and Why It Matters (Coyle), 15, 17–18 special interest groups, 64–66 spectrum auctions, 60–61 spillovers, 127, 139–40, 180, 199, 201, 206–8 Spufford, Francis, 182–83, 190 Sputnik, 190 stagnation, 143, 194 Standard Oil, 42 Stanovich, Keith, 47 Stapleford, Thomas, 146 statistics: Annual Abstract of Statistics for the United Kingdom and, 150; causality and, 61, 95, 99, 102; computers and, 17, 52, 58, 144, 169; digital economy and, 113, 150, 164, 170, 172, 212; empirical work and, 17, 52, 61, 90, 95, 99; Goodhart’s Law and, 72; improved methods for, 99–103; inflation and, 113, 146, 148, 164; macroeconomics and, 101–2, 113, 131; microeconomics and, 58, 101; Office for National Statistics and, 171; probability and, 99, 200; progress and, 138, 142, 144–53, 158–59, 164; public responsibilities and, 17, 42, 51–52, 58, 61, 72, 90, 94–102, 113; randomised control trials (RCTs) and, 93–95, 105, 109–10; Sen-Stiglitz-Fitoussi Commission on the Measurement of Economic Performance and, 151; technology and, 169–72, 212; twenty-first-century policy and, 13, 184, 199 steel, 175, 186, 190, 200 Stern Review, 148 Stiglitz, Joseph, 130, 151, 209 stimulus plans, 73, 75 straw men arguments, 1–2, 5, 10, 15 strikes, 31, 68, 192 superstar features, 173–74 supply and demand, 44, 70–71, 174–75, 183 sustainability, 11, 20, 29, 41, 59, 79, 111, 148, 152, 165–67, 214 Sutton, John, 62 System of National Accounts, 151, 164 Tanner Lectures on Human Values, 18, 83 Tarbell, Ida, 42 taxes, 12, 65; behavioural effects of, 3; benefits and, 157; empirical work and, 3; funded health care and, 44; interventions and, 213; national boundaries and, 196; politics and, 132; sales, 105; Trump and, 213; twenty-first-century policy and, 196, 203; value added (VAT), 105 taxis, 59, 68–69, 139, 186, 203 technology: adoption rates of, 172–73; AI and, 28 (see also artificial intelligence [AI]); automation and, 139, 154, 165–66, 195; changing economies and, 13, 168–81; cloud computing and, 150, 170–72, 184, 197; communications, 25–26, 53, 60, 127, 139, 150, 168, 171, 177, 196, 198; computers and, 2 (see also computers); consumers and, 28, 102, 171–76, 181, 200, 213; declining price of, 170; digital economy and, 6 (see also digital economy); electricity and, 65 (see also electricity); Great Financial Crisis (GFC) and, 56, 181; growth and, 71, 132, 140, 202; innovation and, 169–70 (see also innovation); internet and, 46, 97, 133, 138–39, 168, 198; machine learning and, 12–13, 137, 141, 160–61, 187; materials, 127; Moore’s Law and, 170, 184; outsider context and, 103; production and, 12, 132, 140, 169, 176, 195–96, 202, 213; productivity and, 127, 142, 153, 169, 172–73, 192, 194, 202; progress and, 134, 137–42, 160, 164–65; public responsibilities and, 26–28, 35, 40, 71; regulation and, 27, 71, 134, 181; response time and, 26; servers and, 25–26, 141, 170; skill-biased technical change and, 132; smartphones and, 46, 138–39, 164, 171, 173, 177, 195, 198; social media and, 52, 73, 82, 140–41, 149, 157, 163, 173, 176–77, 195; software, 25, 140, 155, 171, 177–78, 186, 197, 200–201, 203; statistics and, 169–72, 212; stock market bubble of, 133; telephony and, 4, 31, 46, 98, 123, 138–39, 144, 156, 164, 171, 173–74, 177, 184, 195, 198; twenty-first-century policy and, 189–90, 195, 202, 205, 208; ultra-high frequency trading (HFT) and, 25–27; welfare and, 177, 181 telephony: communications and, 4, 31, 46, 98, 123, 138–39, 144, 156, 164, 171, 173–74, 177, 184, 195, 198; GSM standard and, 156; smartphones and, 46, 138–39, 164, 171, 173, 177, 195, 198 Tencent, 173 Thatcher, Margaret, 15, 30–31, 36, 124, 158, 192–94, 206–7 3G platforms, 60, 139, 173, 195 time allocation theory, 2 Tirole, Jean, 209 Tories, 148 “Toward a More Accurate Measure of the Cost of Living” (Boskin Commission), 146–47 transaction costs, 36, 38, 129, 168 Trump, Donald, 57, 131, 213 Tucker, Paul, 62 Tullock, Gordon, 33 Turner, Adair, 31–32 twenty-first-century policy: algorithms and, 184–85, 188, 195, 200; artificial intelligence (AI) and, 184, 186–87, 195; behavioural economics and, 186, 202, 207–8; bias and, 187, 209; capitalism and, 186, 190, 195; competition and, 182, 201–9; computers and, 183–84, 186, 188, 214; consumers and, 184, 198–206; digital economy and, 13, 185–88, 194–210; electricity and, 191–92, 200–201; forecasting and, 205; free market and, 182, 186, 191, 193, 195, 207; Great Financial Crisis (GFC) and, 194; Gross Domestic Product (GDP) and, 187; growth and, 187, 191–92, 194, 202, 207, 209; innovation and, 189, 194–95, 200, 204, 209; interventions and, 188, 191, 194, 206–8, 211; Keynes and, 191, 193; macroeconomics and, 191; models and, 185–86, 189, 191, 197, 209; network effects and, 185, 199–202, 205, 209; political economy and, 188–95, 206–7; production and, 183, 185, 194–97, 199, 202; productivity and, 192, 194, 199, 202, 207; rationality and, 194; regulation and, 193–94, 200, 206; returns to scale and, 185–88, 199, 202–3, 209; statistics and, 13, 184, 199; taxes and, 196, 203; technology and, 189–90, 195, 202, 205, 208; twentieth-century economics and, 180; welfare and, 191, 194, 201, 206, 208 Uber, 68, 133, 142, 173, 175, 197, 203 UK Competition Commission, 105 UK Treasury, 74, 126 ultra-high frequency trading (HFT), 25–27 unemployment, 12, 19, 80, 113, 153, 191–92 unions, 64, 68–69, 129, 132, 146, 192, 194 Unipalm, 133 Unto This Last (Ruskin), 20 Uritaxi, 69 “Use of Knowledge in Society, The” (Hayek), 42–43, 183 US Federal Communications Commission, 60 US Federal Reserve Board, 17, 101 utilitarianism, 10, 151 value added tax (VAT), 105 von Mises, L., 182 Wall Street, 19 Waze, 141 Wealth of Nations, The (Smith), 41 webcams, 133 welfare: consumer, 105, 206; digital economy and, 128, 134, 143, 206, 208, 212; Gross Domestic Product (GDP) and, 134; Hicks-Kaldor compensation and, 122; normative economics and, 114, 120, 134; outsider context and, 105–7, 114; Pareto criterion and, 129; positive economics and, 114, 120; progress and, 130, 143; public responsibilities and, 55, 60; separation protocol and, 120–27; social, 55, 106–7, 114, 120–23, 134, 177, 201, 208; technology and, 177, 181; twenty-first-century policy and, 191, 194, 201, 206, 208 What Money Can’t Buy: The Moral Limits of Markets (Sandel), 34 WhatsApp, 171 Whigs, 148 Williamson, Oliver, 63–64 Wilson, Harold, 208 Winter of Discontent, 158, 192 World War I, 2 World War II, 69, 151, 190, 213 World Wide Web, 133, 195 Wren-Lewis, Simon, 31, 75 Wu, Alice, 8 Y2K, 155

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

—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.

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On average, when there 46 INSIDE THE HOUSE OF MONEY is a bad event, volatility goes up because everybody gets nervous and pays up for insurance. One thing the September 11 attacks did for me was reconfirm that tail risk should not be allowed in your portfolio because things happen that you can’t imagine. I’ll give you an example that shows how serious I am about cutting off tail risk. After the stock market bubble burst in 2000 and the Fed started cutting rates, I thought there was a chance the United States could be headed toward a Japan-like deflation situation. I bought butterfly option structures on front-end interest rates whereby I bought one call struck at 2 percent yield and sold two times as many calls struck at 1 percent yield, such that we’d make money if interest rates went anywhere from 2 percent to zero.The option structure was very cheap and our biggest payout came if rates stopped at 1 percent.

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years later at $18—when gold was trading at $258—making six times our money. (See Figure 4.4.) Another great trade over the years was betting on deflation by continuously buying interest rate options, which paid out when rates got low.We bought floors in the United States and Europe that paid off handsomely in 1998, and again after the stock market bubble burst post-2000, paying us multiples on our investment. Another decent-sized investment for us was buying Russian equities in 1999 after the 1998 wipeout. When Russian equity prices got back to 1992 levels, from a risk/reward perspective, we figured it was time to reinvest. (See Figure 4.5.) The absolute return category is there in order to leave us open to making this unsystematic money.

Valuation: Measuring and Managing the Value of Companies
by Tim Koller , McKinsey , Company Inc. , Marc Goedhart , David Wessels , Barbara Schwimmer and Franziska Manoury
Published 16 Aug 2015

The median return on capital for so-called value companies was 15 percent, compared with 35 percent for the growth companies. So the companies classified as growth did not grow faster on average, but they did have higher returns on capital. That’s why a modestly growing company, like the tobacco company Philip Morris International, ends up on the growth-stock list. Similarly, market bubbles and crises have always captured public attention, fueling the belief that the stock market moves in chaotic ways, detached EXHIBIT 5.2 Distribution of Growth Rates for Growth and Value Stocks Growth stocks do not grow materially faster . . . . . . but do have higher ROICs Value median Growth median 8.7% 10.2% Value median Growth median 15% 35% 14 35 Growth 12 30 10 Value 8 6 % of companies % of companies Growth 25 20 15 4 10 2 5 Value 0 0 –3 1 5 9 13 17 21 3-year average sales growth, % 25 –5 5 15 25 35 45 50+ 3-year average ROIC excluding goodwill, % MARKETS AND FUNDAMENTALS: THE EVIDENCE 69 EXHIBIT 5.3 Stock Performance against Bonds in the Long Run, 1801–2013 $ 100,000,000 Stocks 10,000,000 1,000,000 Stocks (inflation-adjusted) 100,000 Bonds 10,000 Bills 1,000 100 10 CPI 1 0 1801 1816 1831 1846 1861 1876 1891 1906 1921 1936 1951 1966 1981 1996 2011 Source: Jeremy J.

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Using more fre- quent return periods, such as daily and weekly returns, leads to systematic biases.22 r Company stock returns should be regressed against a value-weighted, well-diversified market portfolio, such as the MSCI World Index, bearing in mind that this portfolio’s value may be distorted if measured during a market bubble. In the CAPM, the market portfolio equals the portfolio of all assets, both traded (such as stocks and bonds) and untraded (such as private companies and human capital). Since the true market portfolio is unobservable, a proxy is necessary. For U.S. stocks, the most common proxy is the S&P 500, a valueweighted index of large U.S. companies.

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Metrick, “Corporate Governance and Equity Prices,” Quarterly Journal of Economics 118, no. 1 (2003): 107–155. 22 J. Comprix and K. A. Muller III, “Asymmetric Treatment of Reported Pension Expense and Income Amounts in CEO Cash Compensation Calculations,” Journal of Accounting and Economics 42, no. 3 (December 2006): 385–416. 23 J. Coronado and S. Sharpe, “Did Pension Plan Accounting Contribute to a Stock Market Bubble?” (mimeo, Board of Governors of Federal Reserve System, 2003). CLOSING THOUGHTS 447 CLOSING THOUGHTS Following the financial crisis of 2007–2009, global accounting bodies have worked to close the distortions caused by off-balance-sheet obligations. Although they have made progress, inconsistencies still exist, and careful digging is still required.

Market Wizards: Interviews With Top Traders
by Jack D. Schwager
Published 7 Feb 2012

The difficulty in gaining an edge in the markets is not because prices instantaneously discount all known information (although they sometimes do), but rather because the impact of emotion on prices varies greatly and is nearly impossible to gauge. Sometimes emotions will cause prices to wildly overshoot any reasonable definition of fair value—we call these periods market bubbles. At other times, emotions will cause prices to plunge far below any reasonable definition of fair value—we call these periods market panics. Finally, in perhaps the majority of the time, emotions will exert a limited distortional impact on prices—market environments in which the efficient market hypothesis provides a reasonable approximation.

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Supporters of the efficient market hypothesis are reluctant to give up the theory, despite mounting contradictory evidence, because it provides the foundation for a broad range of critical financial applications, including risk assessment, optimal portfolio allocation, and option pricing. The unfortunate fact, however, is that these applications can lead to erroneous conclusions because the underlying assumptions are incorrect. Moreover, the errors will be most extreme in those periods when the cost of errors will be most severe (i.e., market bubbles and panics). In some sense, efficient market hypothesis proponents are like the proverbial man looking for dropped car keys in the parking lot under the lamppost because that is where the light is. The flaws of the efficient market hypothesis are both serious and numerous: If true, the impossible has happened—and many times.

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Everyone having the same information does not imply that everyone will use information with equal efficiency. The efficient market hypothesis fails to incorporate the impact of human emotions on prices, thereby leaving out a key market price influence that throughout history has at times (e.g., market bubbles and crashes) dominated the influence of fundamental factors. The bad news is: The efficient market hypothesis would preclude the possibility of beating the market other than by chance. The good news is: The efficient market hypothesis appears to be deeply flawed on both theoretical and empirical grounds.

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

Within a few months after that, by July 1995, Greenspan was back to cutting rates, slashing the funds rate from 6 percent to 5.75 percent, flooding the economy with money at a time when the stock market was exploding. With easy credit everywhere and returns on savings and CDs at rock bottom, everyone and his brother rushed ass first into the tech-fueled stock market. “That’s the beginning of the biggest stock market bubble in U.S. history,” says Fleckenstein. But Greenspan’s biggest contribution to the bubble economy was psychological. As Fed chief he had enormous influence over the direction of the economy and could have dramatically altered history simply by stating out loud that the stock market was overvalued.

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“The crucial issue … is to recognize that we have a Y2K problem,” he said at the century’s final FOMC meeting. “It is a problem about which we don’t want to become complacent.” Again, all of these rate cuts and injections—in response to LTCM, the emerging markets crash, and Y2K—were undertaken in the middle of a raging stock market bubble, making his crisis strategy somewhat like trying to put out a forest fire with napalm. 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.

Capitalism: Money, Morals and Markets
by John Plender
Published 27 Jul 2015

These stock promotions were all too often accompanied by fraud, as the temptation to make off with other people’s money became overwhelming. Anyone who wishes to understand this phenomenon should turn not to economic historians but to Dickens and, more specifically, Nicholas Nickleby (of which more in Chapter Five). There, he describes the flotation of a company whose promoters lure outsiders into a stock market bubble and discreetly take their leave before the whole thing pops. While this nineteenth-century corporate party was already going with a swing, it enjoyed a further boost from generalised incorporation, which was introduced in English law along with limited liability under statute, in mid-century.

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And in 1995 he clearly identified that the technology boom was turning into a bubble, telling the Fed’s main policymaking body, the Federal Open Market Committee, in May of that year, ‘The way I put it is that I am more nervous about the asset price bubble than I am about product prices.’ But he also worried that if the Fed pricked the bubble, it could ‘blow the economy out of the water’. At the September 1996 FOMC meeting, he said: ‘I recognise that there is a stock market bubble problem at this point … We do have the possibility of raising major concerns by increasing margin requirements. I guarantee that if you want to get rid of the bubble, whatever it is, that will do it.’ Later that year he made a speech in which he famously referred to ‘irrational exuberance’ in the stock market.

No Is Not Enough: Resisting Trump’s Shock Politics and Winning the World We Need
by Naomi Klein
Published 12 Jun 2017

The main pillars of Trump’s political and economic project are: the deconstruction of the regulatory state; a full-bore attack on the welfare state and social services (rationalized in part through bellicose racial fearmongering and attacks on women for exercising their rights); the unleashing of a domestic fossil fuel frenzy (which requires the sweeping aside of climate science and the gagging of large parts of the government bureaucracy); and a civilizational war against immigrants and “radical Islamic terrorism” (with ever-expanding domestic and foreign theaters). In addition to the obvious threats this entire project poses to those who are already most vulnerable, it’s also a vision that can be counted on to generate wave after wave of crises and shocks. Economic shocks, as market bubbles—inflated thanks to deregulation—burst; security shocks, as blowback from anti-Islamic policies and foreign aggression comes home; weather shocks, as our climate is further destabilized; and industrial shocks, as oil pipelines spill and rigs collapse, which they tend to do when the safety and environmental regulations that prevent chaos are slashed.

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Trump has announced plans to dismantle Dodd–Frank, the most substantive piece of legislation introduced after the 2008 banking collapse. Dodd–Frank wasn’t tough enough, but its absence will liberate Wall Street to go wild blowing new bubbles, which will inevitably burst, creating new economic shocks. Trump’s team are not unaware of this, they are simply unconcerned—the profits from those market bubbles are too tantalizing. Besides, they know that since the banks were never broken up, they are still too big to fail, which means that if it all comes crashing down, they will be bailed out again, just like in 2008. (In fact, Trump issued an executive order calling for a review of the specific part of Dodd–Frank designed to prevent taxpayers from being stuck with the bill for another such bailout—an ominous sign, especially with so many former Goldman executives making White House policy.)

Early Retirement Extreme
by Jacob Lund Fisker
Published 30 Sep 2010

The methods for doing so will be simple. I won't present any tips that haven't been seen before and which one can't find described in detail in hundreds of other books. Success won't depend on becoming famous on the Internet or getting a book deal, nor will it depend on a timely participation in a market bubble of junk bonds, internet companies, real estate, gold, or tulips. It also won't depend on successfully starting your own business. You won't need to develop a particular specialized skill such as real estate flipping. In fact, if you have a job, keep it. However, using the methods in a way that aligns your goals and side effects persistently and consistently to achieve financial or job-independence is not easy.

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It's similar to how the insight that gravity is a two-body force and that the gravitational force between the sun and each individual planet is much stronger than the force between the individual planets makes it possible to compute planetary motion. In astrophysics, this always holds true. In economics and investing, it only holds in most cases. When it doesn't, we have market bubbles and crashes. These occur when a substantial number of market participants start behaving according to how the market is behaving--that is, how they themselves are behaving. Their behavior becomes self-referential without them realizing it! In particular the problem is now that the average of all investors is so well tracked that a large fraction of the market responds to the average--and as it very often happens, decisions are strongly influenced by what can be measured, rather than what should be measured.

Higher: A Historic Race to the Sky and the Making of a City
by Neal Bascomb
Published 2 Jan 2003

“Wall Street was pandemonium,” said Philip Gibb of the downtown scene that fall. “The outside brokers—the curb men—were bidding against one another for stocks not quoted on the New York Exchange, and their hoarse cries mingled in a raucous chorus. I stood outside a madhouse staring at lunatics.” The stock market bubble—once tethered on a long, thin string to reality far below—had come loose. At the closing bell, the Dow Jones Industrial Average was 381, compared to 104 five years earlier. In the last three months alone, average values had risen twenty-five percent. For all the decade’s marvels and activity—the speed records, dancing contests, political ballyhoo, speakeasy raids, airplane crashes, and talking picture premieres—nothing captured the country’s attention like the market that day.

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Like him, George Ohrstrom and Walter Chrysler went into the Depression facing a tough road ahead, but both managed to sustain themselves through the desperate times, although one had to give up ownership of his skyscraper. In the crash, the boy wonder of Wall Street forfeited most of the water companies he had assembled during the market bubble, leaving him in a precarious financial position, but his voyage to Europe in the wake of Black Tuesday was a success, helping him to maintain the support of his investors. Once again he began acquiring small industrial businesses within a larger holding company. The market implosion taught him not to leverage his companies against one another.

The Clash of the Cultures
by John C. Bogle
Published 30 Jun 2012

Controversial votes may draw unwanted publicity. By their long forbearance and lassitude on corporate governance issues, mutual funds bear no small share of the responsibility for the failures in corporate governance and accounting oversight that were among the major forces creating the stock market bubble of the late 1990s, and the (50 percent) bear market that followed.6 If the owners of our corporations don’t care about governance, who else is there to assume that responsibility? The first step toward greater accountability is for mutual fund agents to disclose how they vote the shares they own on behalf of their shareholder principals.

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For example, in the Go-Go Years of the late 1960s, some 350 new equity funds—largely highly volatile and risky “performance” funds—were formed, more than doubling the number of funds from 240 in 1965 to 535 in 1972. With the ensuing collapse of that bubble and the subsequent 50 percent decline in the overall stock market, only seven or eight new funds were formed during each year in the decade that followed. In the next marketing bubble—the rise of the Information Age, beginning in the late 1990s—funds focusing on Internet and high-tech stocks led the way. The fund industry responded just as one would expect a marketing business to respond. We created an astonishing total of 3,800(!) new equity funds, mostly aggressive growth funds focused on technology and the so-called new economy.

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

Mellon’s message was clear: government should just get out of the way.78 Regulation of private business, as espoused by Brandeis and Wilson, slipped out of fashion.79 The antiregulatory policies of the 1920s helped make possible a period of rampant financial speculation, driven by investment banks and closely related firms that sold and traded securities in an unregulated free-for-all. Investor protection was minimal; small investors could be lured into complex financial vehicles they didn’t understand, and were offered large margin loans to leverage their positions.80 While the market rose, everyone benefited. But the result was a stock market bubble fueled by borrowing and psychological momentum.81 Low interest rates set by the Federal Reserve also fueled an economic boom for much of the decade and encouraged increased borrowing by companies and individuals.82 By 1929, financial assets were at all-time highs, sustained by high levels of leverage throughout the economy.

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For their pains, the Rubin-Summers-Greenspan trio was featured on the cover of Time magazine as the “Committee to Save the World.”2 The second lesson was that while the U.S. economy was not completely immune to financial panics, any real damage could be contained through a few backroom deals. At the urging of the Federal Reserve, LTCM was essentially bought out and refinanced by a group of private sector banks, preventing a major crisis; a series of interest rate cuts by the Fed even kept the stock market bubble growing for another two years. The mature U.S. financial system, it seemed, could withstand any infection that might spread from the developing world, thanks to its sound financial system and macroeconomic management. Crises were for countries with immature economies, insufficiently developed financial systems, and weak political systems, which had not yet achieved long-term prosperity and stability—countries like Thailand, Indonesia, and South Korea.

The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy
by Stephanie Kelton
Published 8 Jun 2020

Without Treasuries, the Fed would need to find some other way to set interest rates.50 In the end, the problem solved itself. By 2002, the surpluses were gone, and the US was no longer on track to pay down the national debt, much less retire the full amount. The federal budget moved back into deficit after 2001, when the stock market bubble—which had been supporting consumer spending—burst. A recession began in 2001. It was a fairly mild recession, but the damage had been done.51 As we’ll see in the next chapter, the Clinton surpluses had weakened private sector balance sheets, magnifying the damage caused by the arrival of the Great Recession, which began in 2007.

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Kestenbaum, “What If We Paid Off the Debt?” Concern was that if the Fed had to buy other kinds of financial assets, it might look like it was picking winners and losers. 51. Before the recession hit, the US economy grew rapidly, pushing revenues up sharply. The boom was largely the result of a stock-market bubble, which fueled the growth that moved the budget into surplus. As the bubble began to collapse in January 2001, the economy moved into recession. The fiscal surpluses didn’t cause the recession, but they set the stage for the more severe recession that began in 2007. For more on this, see Wynne Godley, Seven Unsustainable Processes (Annandale-on-Hudson, NY: Jerome Levy Economics Institute, 1999), www.levyinstitute.org/pubs/sevenproc.pdf. 52.

Unfinished Business
by Tamim Bayoumi

This unconventional lending approach was justified by the observation that that US national house prices had never fallen in the postwar period. Unsurprisingly, after this assumption proved incorrect and house prices did start to fall in 2006, the default rate on these loans rapidly escalated. The market collapsed along with its central dogma. Obviously, changes in rules on repo collateral was not the only driver of the US housing market bubble. Many other factors were involved, most importantly a massive failure of US consumer protection for subprime mortgage borrowers which allowed mortgage lenders to offer increasingly unsafe loans based on miniscule downpayments, low initial charges on the loan, and minimal documentation. This lax attitude largely reflected the Federal Reserve’s overinflated belief that risks taken by banks would be limited by market discipline from investors (the Federal Reserve was the main regulator of mortgage lending standards).

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The innate desire not to be seen as disruptive discourages individuals from questioning the perceived wisdom of other investors, as underlined, for example, in the account of how a few outliers did resist such pressure in the book about the financial crisis, Michael Lewis’s The Big Short. More generally, Professor Robert Shiller of Yale, one of the few prominent economists who recognized that the US housing market was in a massive bubble before the crisis, has been one of several financial economists to suggest that financial market bubbles can be modeled as social waves in which ideas catch fire and become self-reinforcing before eventually deflating.7 Such social eruptions can be modeled using similar tools to those used to examine epidemics, involving the probability of passing on an infection from one person to the other and a rate at which people stop being infectious, which define the height and longevity of the craze.

The Human City: Urbanism for the Rest of Us
by Joel Kotkin
Published 11 Apr 2016

FLEW, Terry. (2011). “Right to the City, Desire for the Suburb?,” M/C Journal, vol. 14, no. 4, http://journal.media-culture.org.au/index.php/mcjournal/article/viewArticle/368. FLORCRUZ, Michelle. (2015, February 7). “China’s Housing Market Bubble: Home Ownership Elusive for Young Buyers and Renters,” International Business Times, http://www.ibtimes.com/chinas-housing-market-bubble-home-ownership-elusive-young-buyers-renters-1808472. FLORIDA, Richard. (2009, March). “How the Crash Will Reshape America,” The Atlantic, http://www.theatlantic.com/magazine/archive/2009/03/how-the-crash-will-reshape-america/307293/. ——— (2012, July 31).

Big Debt Crises
by Ray Dalio
Published 9 Sep 2018

Since borrowing is simply a way of pulling spending forward, the person spending $60,000 per year and earning $50,000 per year has to cut his spending to $40,000 for as many years as he spent $60,000, all else being equal. Though a bit of an oversimplification, this is the essential dynamic that drives the inflating and deflating of a bubble. The Start of a Bubble: The Bull Market Bubbles usually start as over-extrapolations of justified bull markets. The bull markets are initially justified because lower interest rates make investment assets, such as stocks and real estate, more attractive so they go up, and economic conditions improve, which leads to economic growth and corporate profits, improved balance sheets, and the ability to take on more debt—all of which make the companies worth more.

…

In either case, during these bubbles the total returns of these assets to foreigners (i.e., asset prices in local currency plus the currency appreciation) are very attractive. That plus that country’s hot economic activity encourage more foreign inflows and fewer domestic outflows. Over time, the country becomes the hot place to invest, and its assets become overbought so debt and stock-market bubbles emerge. Investors believe the country’s assets are a fabulous treasure to own and that anyone not in the country is missing out. Investors who were never involved with the market rush in. When the market gets fully long, leveraged, and overpriced, it becomes ripe for a reversal. In the bullets here and in the ones that follow, we show some key economic developments typically seen as the bubble inflates.

…

After dropping them as low as 10 percent the previous year, margin requirements at most brokers rose to 45 to 50 percent.30 The stock market peaked on September 3 when the Dow closed at 381—a level that it wouldn’t reach again for over 25 years. It’s important to remember that no specific event or shock caused the stock market bubble to burst. As is classic with bubbles, rising prices required buying on leverage to keep accelerating at an unsustainable rate, both because speculators and lenders were near or at their max positions and because tightening changes the economics of leveraging up. Stocks started to decline in September and early October as a series of bad news stories eroded investor confidence.

Small Change: Why Business Won't Save the World
by Michael Edwards
Published 4 Jan 2010

They forget that their success may be due to luck, and that the non-profit sector may be far more complex than where they have come from,” says Mario Morino, head of Venture Philanthropy Partners, in a welcome dose of common sense.11 Shiller used the word irrational in the title of his famous book for a very good reason, since he knew that stock market bubbles and corrections are caused less by facts and fundamentals than by a popular consensus that becomes disconnected from what is happening on the ground. In similar fashion, the philanthrocapitalists have latched on to something potentially important — that business and the market can have more social impact — but have become so caught up in the buzz surrounding their ideas that they are ignoring the costs of what they are recommending and exaggerating the benefits. 6 small change The advance of capitalism brings many material and technological rewards, but it also dismantles the social ties and sense of common purpose that are essential to healthy and well-functioning societies; and in its present form, it promotes inequality and individual alienation.

Hawai'I Becalmed: Economic Lessons of the 1990s
by Christopher Grandy
Published 30 Sep 2002

Being open to the rest of the world means being vulnerable to events outside your control. The Gulf War was one of these events, a conflict on the other side of the world that had real and immediate effects on Hawai‘i’s economic fortunes. The slide of the mainland economy into recession, followed by the bursting of Japan’s stock and property market bubbles brought Hawai‘i’s economic growth to zero. Hawai‘i residents initially reacted to the stagnation with blame and denial. Perhaps that is a natural reaction to events that suggest the necessity to reevaluate long-cherished policies. The disappearance of accumulated balances in the state general fund signaled the severity of the downturn.

Ten Arguments for Deleting Your Social Media Accounts Right Now
by Jaron Lanier
Published 28 May 2018

Military units are the canonical example. Sometimes people must lose themselves to a hierarchical order because that’s the only way to survive. But a primary goal of civilization should be to make those times as rare as possible. Capitalism fails when the switch is set to Pack. The Pack setting causes market bubbles and other market failures. There are certainly noisy businesspeople who prefer military metaphors for business; you’re supposed to be tough and ruthless. But since the Pack setting also makes you partially blind, in the long run that personality style is not great for business, if we define business as being about reality beyond social competitions.

Naked Economics: Undressing the Dismal Science (Fully Revised and Updated)
by Charles Wheelan
Published 18 Apr 2010

Simon Johnson, former chief economist for the International Monetary Fund, wrote an excellent postmortem of the financial crisis for The Atlantic in 2009. He notes, “Major commercial and investment banks—and the hedge funds that ran alongside them—were the big beneficiaries of the twin housing and equity-market bubbles of this decade, their profits fed by an ever-increasing volume of transactions founded on a relatively small base of actual physical assets. Each time a loan was sold, packaged, securitized, and resold, banks took their transaction fees, and the hedge funds buying those securities reaped ever-larger fees as their holdings grew.”12 Each transaction carries some embedded risk.

…

In the 1990s, as the American economy roared through its longest expansion in economic history, Mr. Greenspan was given credit for his “Goldilocks” approach to monetary policy—doing everything just right. That reputation has since come partially unraveled. Mr. Greenspan is now criticized for abetting the housing and stock market bubbles by keeping interest rates too low for too long. “Cheap money” didn’t cause inflation by sending everyone to buy PT Cruisers and Caribbean cruises. Instead we bought stocks and real estate, and those rising asset prices didn’t show up in the consumer price index. Add one new challenge to monetary policy: We were speeding even though the gauges we’re used to looking at said we weren’t.

Samuelson Friedman: The Battle Over the Free Market
by Nicholas Wapshott
Published 2 Aug 2021

It was around this time that Friedman, in collaboration with a colleague from the National Bureau of Economic Research, Anna Schwartz,35 set out on research into the role of money in the history of the U.S. economy. Their work together would become the central plank of Friedman’s lifelong interest in the subject. The resulting Monetary History of the United States, 1867–1960, published in 1960, turned on its head conventional wisdom about the reasons for the Great Depression, blaming not the stock market bubble and the overheated economy, which were suggested by Keynes, but the failure of the Federal Reserve to provide enough money to keep the economy moving. While the conventional view was that the federal government had rightly tightened the cost of borrowing to put an end to the rampant speculation in stocks that had led to the Crash of 1929, Friedman, by trawling through the monetary data, came to a different conclusion: had the Federal Reserve eased interest rates earlier, many of the businesses which had gone bust could have borrowed to remain open.

…

In 1960, Friedman and Anna Schwartz concluded their years of research into a century of American monetary data, A Monetary History of the United States, 1867–1960, which turned on its head the conventional wisdom about what caused the Great Depression. The traditional view suggested that too much money chasing too few goods—and too few stocks—had led to unsustainably high prices of both stocks and goods, ending in a stock market bubble that burst in the Crash of 1929. But a careful perusal of the contemporary financial data, Friedman and Schwartz argued, suggested a quite different cause: that the tightness of money in circulation—with interest rates kept deliberately high by the Federal Reserve—had led to the string of bank collapses that froze the financial system, spooked the stock market, and triggered the market collapse.

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing (Eleventh Edition)
by Burton G. Malkiel
Published 5 Jan 2015

The ability to avoid such horrendous mistakes is probably the most important factor in preserving one’s capital and allowing it to grow. The lesson is so obvious and yet so easy to ignore. THE U.S. HOUSING BUBBLE AND CRASH OF THE EARLY 2000s Although the Internet bubble may have been the biggest stock-market bubble in the United States, the bubble in single-family home prices that inflated during the early years of the new millennium was undoubtedly the biggest U.S. real estate bubble of all time. Moreover, the boom and later collapse in house prices had far greater significance for the average American than any gyrations in the stock market.

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In addition, many of these patterns could self-destruct in the future, as many of them have already done. Indeed, this is the logical reason why one should be cautious not to overemphasize these anomalies and predictable patterns or to put too much reliance on “smart beta” portfolios to enhance investment performance. “Smart beta” portfolios will not protect you from market bubbles. I realize that some critics of the EMH and some managers of “smart beta” portfolios argue that the dot-com bubble was easy to identify as it was inflating. Robert Shiller published his book Irrational Exuberance in early 2000, just at the peak of the market. True, but the same models that identified a bubble in early 2000 also identified a vastly “overpriced” stock market in 1992, when low dividend yields and high price-earnings multiples suggested that long-run equity returns would be close to zero in the United States.

Magical Urbanism: Latinos Reinvent the US City
by Mike Davis
Published 27 Aug 2001

have meet largest firms lacked even "It is pretty clear," says UC Santa Cruz's Manuel Pastor, "that there's ethnic and occupation segregation going on in Silicon Valley." Locked out of the "New Economy," it is not surprising that Latinos are also the least likely to profit individually or through group membership from the fin de siecle stock market bubble. According to a January 2000 Federal Reserve fifth ally study, the bottom of Americans, as a result of exploding household debt, actu- had fewer to real estate assets and than in 1995.^^° White median wealth, thanks Dow Jones, is Latinos: $45,700 versus $4700.)^^^ now almost ten times that of 10 THE PUERTO RICAN TRAGEDY In the worst-case scenario, many of today's Mexican, Central American and Dominican immigrants may recapitulate the bitter experience of the Puerto Rican diaspora.

The Best Way to Rob a Bank Is to Own One: How Corporate Executives and Politicians Looted the S&L Industry
by William K. Black
Published 31 Mar 2005

The General Accounting Office (GAO) was assigned the task of identifying high-risk government activities. The SEC, for example, properly defines itself in its recent strategic plans as “a civil law enforcement agency” (SEC Annual Report for 2002, 1). The SEC’s annual reports during the 1990s, however, despite the record-setting, inflating stock market bubble, never defined a wave of control fraud as a central risk to the accomplishment of its mission. The SEC had grossly inadequate resources, did not see the wave of control frauds coming, and was overwhelmed. The GAO’s definition of high-risk functions includes fraud risk as a key factor. The GAO, however, limited its concept of fraud risk to situations in which someone was stealing from a public agency.

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His successor, Danny Wall, would not have taken on the control frauds for reasons made clear later in this book. Indeed, he helped the most notorious control fraud escape regulatory control. Eventually, the expanding wave of control fraud would have caused such a massive bubble in real estate values that it would have collapsed. Since Japan’s real estate and stock market bubbles grew for a full decade during the 1980s without the growth advantages provided by deposit insurance, a U.S. bubble could have lasted for over a decade. Therefore, the wave of control fraud could have extended throughout the Reagan and Bush administrations had it not been for Gray’s desperate war against the control frauds.

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

The Dot-Com Crash As real money was becoming increasingly loaded up on equity risk in their 60-40 portfolios (stocks can be anywhere from 2 to 10 times riskier than bonds depending on what proxies are used), two decades of declining inflation and interest rates culminated in a technology-led stock market bubble that finally popped in March 2000. After the peak, global equity markets declined relentlessly year after year, finally bottoming in early 2003. Stocks generally lost half their value while in-vogue technology stocks dropped 75 percent from peak to trough (see Figure 1.6). Just as they had in the 1970s with bonds, real money managers became painfully aware of the equity concentration risk in their portfolios and began to look for a better, less risky approach.

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See European Central Bank Economic crash (2008) banks, problems foresight Economic cycle, driver (location) Economic entity, presence Economic leverage, accounting leverage (contrast) Economy, double dip (hypothesis) Efficient frontier leverage, relationship Efficient markets, disbelief Electorate-adjusted El-Erian, Mohamed Emerging markets bearish markets bubble collapse corporate bonds, usage decoupling equities, selection Employee pension scheme, capital allocation End of the Line, The (Lynn) Endowment Model flaws invalidation orientation portfolio resemblance Endowments cash level Commodity Hedger process decrease in-house trading staff, absence problems Energy, usage Equities bubble/overvaluation performance risk, commodity risk (contrast) risk premium, faith risky assets Equity assets, U.S. public/private pension ownership Equity bubble, conditions Equity-centric portfolio, endorsement (Swensen) Equity concentration risk, awareness Equity index futures, usage Equity-like instruments, usage Equity multiples (1980-2000) Equity-oriented portfolios, decrease Equity returns, Harvard/Yale endowments (contrast) Equity Trader, The adaptability call blow-ups, avoidance business entry CalPERS operation core positions trading, indices/options (usage) discipline, lessons environment differentiation focus fundamentals, understanding future adaptability hedge fund operation, worries outlook interview investor meetings lessons manager, investor base (impact) market environment identification momentum trades, options (usage) performance, randomness P&L, trading portfolio construction positioning, understanding private deals, execution profit-taking process real money fund management research team, usage risk framework transition rules, discovery socialism, concern sovereign wealth fund operation stockholder understanding stocks, shorting/ownership (contrast) taxes, hedge traders competition hiring criteria trades ideas, origination quality risk/reward, change trading accounts, problems decisions, policy makers (impact) disaster preplanning sharpness style, implementation worldview Euro, two-year Euro interest rates European Central Bank (ECB) inflation targeting European Currency Unit (ECU) basket European Exchange Rate (ERM) European Monetary Unit (EMU) European Union, breakage (potential) Excess demand, control Excess return, valuation Exchange rate valuation, P/E multiples (relationship) Exchange-traded funds (ETFs) allowance usage Export land model Extreme scenarios, protection (purchase) Faber, Mark Family office manager Fat-tail events Favorite Trade concept format, Plasticine Macro Trader disapproval Federal Reserve Funds, target rate (2008) independence, cessation Feedback, impact Ferguson, Niall Fiat currencies, impact Fiat money, cessation Filipino Diaspora Finance, diversification (impact) Financial bubble, risk Financial instruments, usage Financials, future Financial stocks (2007-2008) Financing problems Firm-level risk management Fiscal policy easing role, impact underestimation Fiscal stimulus China impact Fixed income trading, focus Fixed income volatility trade Flexibility, value (example) Fordham Law School, support Forecast combinations, improvement Forecasting model parameters, estimation Foreign currency diversification, usage Foreign Direct Investment (FDI) Forward fixed income Forward price, spot price (contrast) Forward-starting volatility Friedman, Milton Front contracts, physical commodities Fundamental investing/research, time frames (matching) Fundamentals, understanding Fund management, skill Fund performance, indicator Future benefit obligations, earnings Future correlations, usage FX forwards G3/G7 liquid rate, arbitrage opportunity (absence) G7 demand G7 economies, problems G10 policy General Theory of Employment, Interest, and Money, The (Keynes) German Schatz contracts Global adjustment period Global dollar carry trade Global economy, weakness Global equities decrease markets, decline Global fund management industry Global governments, financial system (backstopping) Globalization, meaning Global macro approach Global macro funds, factors Global macro hedge fund managers Global warming, carbon dioxide (impact) Gold (1979-1980) (1999) (2000-2009) (2004-2009) pension fund base currency safety Good leverage, classification Government bonds bull market (1985-2009) leverage, change LIBOR positions, leverage safety Government debt, funding Government default risk Government stimulus, payment Grantham, Jeremy Great Britain, ERM absence Great Depression spending, decrease taxes, increase Great Macro Experiment.

The Euro: How a Common Currency Threatens the Future of Europe
by Joseph E. Stiglitz and Alex Hyde-White
Published 24 Oct 2016

The three main channels through which quantitative easing helped the economy were all weak: a slight weakening of the value of the dollar helped exports—but these effects were eventually countervailed by America’s trading partners; mortgage rates were reduced as long-term interest rates fell, but the monopolistic banks—and bank concentration after the crisis was greater than before—took much of the lower interest rates and simply enjoyed it as extra profits; and the stock market bubble led the very rich to consume a little more, especially of luxury goods, many of which were made abroad. What the economy really needed was more lending to businesses, but big businesses were already sitting on $2 trillion of cash and were essentially unaffected by QE. And because the Fed and the Obama administration had fixed their attention on the big New York banks and other international banks, the ability of the smaller regional and community banks to make loans remained impaired.43 The result was that years after the crisis such lending remained before its precrisis level.

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Africa, 10, 95, 381 globalization and, 51 aggregate demand, 98, 107, 111, 118–19, 189, 367 deflation and, 290 lowered by inequality, 212 surpluses and, 187, 253 tech bubble slump in, 250 as weakened by imports, 111 aggregate supply, 99, 104, 189 agricultural subsidies, 45, 197 agriculture, 89, 224, 346 airlines, 259 Akerlof, George, 132 American Express, 287 Apple, 81, 376 Argentina, 18, 100, 110, 117, 371 bailout of, 113 debt restructuring by, 205–6, 266, 267 Arrow-Debreu competitive equilibrium theory, 303 Asia, globalization and, 51 asset price bubbles, 172 Athens airport, 191, 367–68 austerity, xvi–xvii, 9, 18–19, 20, 21, 28–29, 54, 69–70, 95, 96, 98, 97, 103, 106, 140, 150, 178, 185–88, 206, 211, 235, 316–17 academics for, 208–13 debt restructuring and, 203–6 design of programs of, 188–90 Germany’s push for, 186, 232 government investment curtailed by, 217 opposition to, 59–62, 69–70, 207–8, 315, 332, 392 private, 126–27, 241–42 reform of, 263–65 Austria, 331, 343 automatic destabilizers, see built-in destabilizers automatic stabilizers, 142, 244, 247–48, 357 flexible exchange rate as, 248 bail-ins, 113 bailouts, 91–92, 111, 112–13, 201–3, 354, 362–63, 370 of banks, 127–28, 196, 279, 362–63 of East Asia, 202 of Latin America, 202 of Mexico, 202 of Portugal, 178–79 of Spanish banks, 179, 199–200, 206 see also programs balanced-budget multiplier, 188–90, 265 Balkans, 320 bank capital, 284–85 banking system, in US, 91 banking union, 129–30, 241–42, 248, 263 and common regulations, 241 and deposit insurance, 241, 242, 246 Bank of England, 359 inflation target of, 157 Bank of Italy, 158 bankruptcies, 77, 94, 102, 104, 346, 390 super–chapter 11 for, 259–60 banks, 198–201 bailouts of, 127–28, 196, 279, 362–63 capital requirements of, 152, 249 closing of, 378 credit creation by, 280–82 development, 137–38 evolution of, 386–87 forbearance of regulations on, 130–31 Greek, 200–201, 228–29, 231, 270, 276, 367, 368 lending contracted by, 126–27, 246, 282–84 money supply increased by, 277 restructuring of, 113 small, 171 in Spain, 23, 186, 199, 200, 242, 270, 354 too-big-to-fail, 360 bank transfers, 49 Barclays, 131 behavioral economics, 335 Belgium, 6, 331, 343 belief systems, 53 Berlin Wall, 6 Bernanke, Ben, 251, 351, 363, 381 bilateral investment agreement, 369 Bill of Rights, 319 bimetallic standard, 275, 277 Blanchard, Olivier, 211 bonds, 4, 114, 150, 363 confidence in, 127, 145 Draghi’s promise to support, 127, 200, 201 GDP-indexed, 267 inflation and, 161 long-term, 94 restructuring of, 159 bonds, corporate, ECB’s purchase of, 141 borrowing, excessive, 243 Brazil, 138, 370 bailout of, 113 bread, 218, 230 Bretton Woods monetary system, 32, 325 Brunnermeier, Markus K., 361 Bryan, William Jennings, xii bubbles, 249, 381 credit, 122–123 real estate, see real estate bubble stability threatened by, 264 stock market, 200–201 tech, 250 tools for controlling, 250 budget, capital, 245 Buffett, Warren, 287, 290 built-in destabilizers, 96, 142, 188, 244, 248, 357–58 common regulatory framework as, 241 Bulgaria, 46, 331 Bundesbank, 42 Bush, George W., 266 Camdessus, Michel, 314 campaign contributions, 195, 355 Canada, 96 early 1990s expansion of, 209 in NAFTA, xiv railroad privatization in, 55 tax system in, 191 US’s free trade with, 45–46, 47 capital, 76–77 bank, 284–85 human, 78, 137 return to, 388 societal vs. physical, 77–78 tax on, 356 unemployment increased by, 264 capital adequacy standards, 152 capital budget, 245 capital controls, 389–90 capital flight, 126–34, 217, 354, 359 austerity and, 140 and labor flows, 135 capital flows, 14, 15, 25, 26, 27–28, 40, 116, 125, 128, 131, 351 economic volatility exacerbated by, 28, 274 and foreign ownership, 195 and technology, 139 capital inflows, 110–11 capitalism: crises in, xviii, 148–49 inclusive, 317 capital requirements, 152, 249, 378 Caprio, Gerry, 387 capture, 158–60 carbon price, 230, 260, 265, 368 cash, 39 cash flow, 194 Catalonia, xi CDU party, 314 central banks, 59, 354, 387–88 balance sheets of, 386 capture of, 158–59 credit auctions by, 282–84 credit creation by, 277–78 expertise of, 363 independence of, 157–63 inequality created by, 154 inflation and, 153, 166–67 as lender of last resort, 85, 362 as political institutions, 160–62 regulations and, 153 stability and, 8 unemployment and, 8, 94, 97, 106, 147, 153 CEO compensation, 383 Chapter 11, 259–60, 291 childhood poverty, 72 Chile, 55, 152–53 China, 81, 98, 164, 319, 352 exchange-rate policy of, 251, 254, 350–51 global integration of, 49–50 low prices of, 251 rise of, 75 savings in, 257 trade surplus of, 118, 121, 350–52 wages controlled in, 254 as world’s largest economy, 318, 327 chits, 287–88, 290, 299–300, 387, 388–389 Citigroup, 355 climate change, 229–30, 251, 282, 319 Clinton, Bill, xiv, xv, 187 closing hours, 220 cloves, 230 cognitive capture, 159 Cohesion Fund, 243 Cold War, 6 collateral, 364 collective action, 41–44, 51–52 and inequality, 338 and stabilization, 246 collective bargaining, 221 collective goods, 40 Common Agricultural Policy, 338 common regulatory framework, 241 communism, 10 Community Reinvestment Act (CRA), 360, 382 comparative advantage, 12, 171 competition, 12 competitive devaluation, 104–6, 254 compromise, 22–23 confidence, 95, 200–201, 384 in banks, 127 in bonds, 145 and structural reforms, 232 and 2008 crisis, 280 confirmation bias, 309, 335 Congress, US, 319, 355 connected lending, 280 connectedness, 68–69 Connecticut, GDP of, 92 Constitutional Court, Greek, 198 consumption, 94, 278 consumption tax, 193–94 contract enforcement, 24 convergence, 13, 92–93, 124, 125, 139, 254, 300–301 convergence criteria, 15, 87, 89, 96–97, 99, 123, 244 copper mines, 55 corporate income tax, 189–90, 227 corporate taxes, 189–90, 227, 251 corporations, 323 regulations opposed by, xvi and shutdown of Greek banks, 229 corruption, 74, 112 privatization and, 194–95 Costa, António, 332 Council of Economic Advisers, 358 Council of State, Greek, 198 countercyclical fiscal policy, 244 counterfactuals, 80 Countrywide Financial, 91 credit, 276–85 “divorce”’s effect on, 278–79 excessive, 250, 274 credit auctions, 282–84 credit bubbles, 122–123 credit cards, 39, 49, 153 credit creation, 248–50, 277–78, 386 by banks, 280–82 domestic control over, 279–82 regulation of, 277–78 credit default swaps (CDSs), 159–60 crisis policy reforms, 262–67 austerity to growth, 263–65 debt restructuring and, 265–67 Croatia, 46, 331, 338 currency crises, 349 currency pegs, xii current account, 333–34 current account deficits, 19, 88, 108, 110, 120–121, 221, 294 and exit from euro, 273, 285–89 see also trade deficit Cyprus, 16, 30, 140, 177, 331, 386 capital controls in, 390 debt-to-GDP ratio of, 231 “haircut” of, 350, 367 Czech Republic, 46, 331 debit cards, 39, 49 debtors’ prison, 204 debt restructuring, 201, 203–6, 265–67, 290–92, 372, 390 of private debt, 291 debts, xx, 15, 93, 96, 183 corporate, 93–94 crisis in, 110–18 in deflation, xii and exit from eurozone, 273 with foreign currency, 115–18 household, 93–94 increase in, 18 inherited, 134 limits of, 42, 87, 122, 141, 346, 367 monetization of, 42 mutualization of, 242–43, 263 place-based, 134, 242 reprofiling of, 32 restructuring of, 259 debt-to-GDP ratio, 202, 210–11, 231, 266, 324 Declaration of Independence, 319 defaults, 102, 241, 338, 348 and debt mutualization, 243 deficit fetishism, 96 deficits, fiscal, xx, 15, 20, 93, 96, 106, 107–8, 122, 182, 384 and balanced-budget multiplier, 188–90, 265 constitutional amendment on, 339 and exit from euro, 273, 289–90 in Greece, 16, 186, 215, 233, 285–86, 289 limit of, 42, 87, 94–95, 122, 138, 141, 186, 243, 244, 265, 346, 367 primary, 188 problems financing, 110–12 structural, 245 deficits, trade, see trade deficits deflation, xii, 147, 148, 151, 166, 169, 277, 290 Delors, Jacques, 7, 332 democracy, lack of faith in, 312–14 Democracy in America (Tocqueville), xiii democratic deficit, 26–27, 35, 57–62, 145 democratic participation, xix Denmark, 45, 307, 313, 331 euro referendum of, 58 deposit insurance, 31, 44, 129, 199, 301, 354–55, 386–87 common in eurozone, 241, 242, 246, 248 derivatives, 131, 355 Deutsche Bank, 283, 355 devaluation, 98, 104–6, 254, 344 see also internal devaluation developing countries, and Washington Consensus, xvi discretion, 262–63 discriminatory lending practices, 283 disintermediation, 258 divergence, 15, 123, 124–44, 255–56, 300, 321 in absence of crisis, 128–31 capital flight and, 126–34 crisis policies’ exacerbation of, 140–43 free mobility of labor and, 134–36, 142–44, 242 in public investment, 136–38 reforms to prevent, 243 single-market principle and, 125–26 in technology, 138–39 in wealth, 139–40 see also capital flows; labor movement diversification, of production, 47 Dodd-Frank Wall Street Reform and Consumer Protection Act, 355 dollar peg, 50 downsizing, 133 Draghi, Mario, 127, 145, 156, 158, 165, 269, 363 bond market supported by, 127, 200, 201 Drago, Luis María, 371 drug prices, 219 Duisenberg, Willem Frederik “Wim,” 251 Dynamic Stochastic Equilibrium model, 331 East Asia, 18, 25, 95, 102–3, 112, 123, 202, 364, 381 convergence in, 138 Eastern Europe, 10 Economic Adjustment Programme, 178 economic distortions, 191 economic growth, xii, 34 confidence and, 232 in Europe, 63–64, 69, 73–74, 74, 75, 163 lowered by inequality, 212–13 reform of, 263–65 and structural reforms, 232–35 economic integration, xiv–xx, 23, 39–50 euro and, 46–47 political integration vs., 51–57 single currency and, 45–46 economic rents, 226, 280 economics, politics and, 308–18 economic security, 68 economies of scale, 12, 39, 55, 138 economists, poor forecasting by, 307 education, 20, 76, 344 investment in, 40, 69, 137, 186, 211, 217, 251, 255, 300 electricity, 217 electronic currency, 298–99, 389 electronics payment mechanism, 274–76, 283–84 emigration, 4, 68–69 see also migration employment: central banks and, 8, 94, 97 structural reforms and, 257–60 see also unemployment Employment Act (1946), 148 energy subsidies, 197 Enlightenment, 3, 318–19 environment, 41, 257, 260, 323 equality, 225–26 equilibrium, xviii–xix Erasmus program, 45 Estonia, 90, 331, 346 euro, xiv, 325 adjustments impeded by, 13–14 case for, 35–39 creation of, xii, 5–6, 7, 10, 333 creation of institutions required by, 10–11 divergence and, see divergence divorce of, 272–95, 307 economic integration and, 46–47, 268 as entailing fixed exchange rate, 8, 42–43, 46–47, 86–87, 92, 93, 94, 102, 105, 143, 193, 215–16, 240, 244, 249, 252, 254, 286, 297 as entailing single interest rate, 8, 85–88, 92, 93, 94, 105, 129, 152, 240, 244, 249 and European identification, 38–39 financial instability caused by, 131–32 growth promised by, 235 growth slowed by, 73 hopes for, 34 inequality increased by, xviii interest rates lowered by, 235 internal devaluation of, see internal devaluation literature on, 327–28 as means to end, xix peace and, 38 proponents of, 13 referenda on, 58, 339–40 reforms needed for, xii–xiii, 28–31 risk of, 49–50 weakness of, 224 see also flexible euro Eurobond, 356 euro crisis, xiii, 3, 4, 9 catastrophic consequences of, 11–12 euro-euphoria, 116–17 Europe, 151 free trade area in, 44–45 growth rates in, 63–64, 69, 73–74, 74, 75, 163 military conflicts in, 196 social models of, 21 European Central Bank (ECB), 7, 17, 80, 112–13, 117, 144, 145–73, 274, 313, 362, 368, 380 capture of, 158–59 confidence in, 200–201 corporate bonds bought by, 141 creation of, 8, 85 democratic deficit and, 26, 27 excessive expansion controlled by, 250 flexibility of, 269 funds to Greece cut off by, 59 German challenges to, 117, 164 governance and, 157–63 inequality created by, 154–55 inflation controlled by, 8, 25, 97, 106, 115, 145, 146–50, 151, 163, 165, 169–70, 172, 250, 256, 266 interest rates set by, 85–86, 152, 249, 302, 348 Ireland forced to socialize losses by, 134, 156, 165 new mandate needed by, 256 as political institution, 160–62 political nature of, 153–56 quantitative easing opposed by, 151 quantitative easing undertaken by, 164, 165–66, 170, 171 regulations by, 249, 250 unemployment and, 163 as unrepresentative, 163 European Commission, 17, 58, 161, 313, 332 European Court of Human Rights, 45 European Economic Community (EEC), 6 European Exchange Rate Mechanism (ERM), 30, 335 European Exchange Rate Mechanism II (ERM II), 336 European Free Trade Association, 44 European Free Trade Association Court, 44 European Investment Bank (EIB), 137, 247, 255, 301 European Regional Development Fund, 243 European Stability Mechanism, 23, 246, 357 European Union: budget of, 8, 45, 91 creation of, 4 debt and deficit limits in, 87–88 democratic deficit in, 26–27 economic growth in, 215 GDP of, xiii and lower rates of war, 196 migration in, 90 proposed exit of UK from, 4 stereotypes in, 12 subsidiarity in, 8, 41–42, 263 taxes in, 8, 261 Euro Summit Statement, 373 eurozone: austerity in, see austerity banking union in, see banking union counterfactual in, 235–36 double-dip recessions in, 234–35 Draghi’s speech and, 145 economic integration and, xiv–xx, 23, 39–50, 51–57 as flawed at birth, 7–9 framework for stability of, 244–52 German departure from, 32, 292–93 Greece’s possible exit from, 124 hours worked in, 71–72 lack of fiscal policy in, 152 and move to political integration, xvi, 34, 35, 51–57 Mundell’s work on dangers of, 87 policies of, 15–17 possible breakup of, 29–30 privatization avoided in, 194 saving, 323–26 stagnant GDP in, 12, 65–68, 66, 67 structure of, 8–9 surpluses in, 120–22 theory of, 95–97 unemployment in, 71, 135, 163, 177–78, 181, 331 working-age population of, 70 eurozone, proposed structural reforms for, 239–71 common financial system, see banking union excessive fiscal responsibility, 163 exchange-rate risks, 13, 47, 48, 49–50, 125, 235 exchange rates, 80, 85, 288, 300, 338, 382, 389 of China, 251, 254, 350–51 and competitive devaluation, 105–6 after departure of northern countries, 292–93 of euro, 8, 42–43, 46–47, 86–87, 92, 93, 94, 102, 105, 215–16, 240, 244, 249, 252, 254, 286, 297 flexible, 50, 248, 349 and full employment, 94 of Germany, 254–55, 351 gold and, 344–45 imports and, 86 interest rates and, 86 quantitative easing’s lowering of, 151 real, 105–6 and single currencies, 8, 42–43, 46–47, 86–87, 92, 93, 94, 97–98 stabilizing, 299–301 and trade deficits, 107, 118 expansionary contractions, 95–96, 208–9 exports, 86, 88, 97–99, 98 disappointing performance of, 103–5 external imbalances, 97–98, 101, 109 externalities, 42–43, 121, 153, 301–2 surpluses as, 253 extremism, xx, 4 Fannie Mae, 91 farmers, US, in deflation, xii Federal Deposit Insurance Corporation (FDIC), 91 Federal Reserve, US, 349 alleged independence of, 157 interest rates lowered by, 150 mandate of, 8, 147, 172 money pumped into economy by, 278 quantitative easing used by, 151, 170 reform of, 146 fiat currency, 148, 275 and taxes, 284 financial markets: lobbyists from, 132 reform of, 214, 228–29 short-sighted, 112–13 financial systems: necessity of, xix real economy of, 149 reform of, 257–58 regulations needed by, xix financial transaction system, 275–76 Finland, 16, 81, 122, 126, 292, 296, 331, 343 growth in, 296–97 growth rate of, 75, 76, 234–35 fire departments, 41 firms, 138, 186–87, 245, 248 fiscal balance: and cutting spending, 196–98 tax revenue and, 190–96 Fiscal Compact, 141, 357 fiscal consolidation, 310 fiscal deficits, see deficits, fiscal fiscal policy, 148, 245, 264 in center of macro-stabilization, 251 countercyclical, 244 in EU, 8 expansionary, 254–55 stabilization of, 250–52 fiscal prudence, 15 fiscal responsibility, 163 flexibility, 262–63, 269 flexible euro, 30–31, 272, 296–305, 307 cooperation needed for, 304–5 food prices, 169 forbearance, 130–31 forecasts, 307 foreclosure proposal, 180 foreign ownership, privatization and, 195 forestry, 81 France, 6, 14, 16, 114, 120, 141, 181–82, 331, 339–40, 343 banks of, 202, 203, 231, 373 corporate income tax in, 189–90 euro creation regretted in, 340 European Constitution referendum of, 58 extreme right in, xi growth in, 247 Freddie Mac, 91 Freefall (Stiglitz), 264, 335 free mobility of labor, xiv, 26, 40, 125, 134–36, 142–44, 242 Friedman, Milton, 151, 152–53, 167, 339 full employment, 94–97, 379 G-20, 121 gas: import of, 230 from Russia, 37, 81, 93 Gates Foundation, 276 GDP-indexed bonds, 267 German bonds, 114, 323 German Council of Economic Experts, 179, 365 Germany, xxi, 14, 30, 65, 108, 114, 141, 181–82, 207, 220, 286, 307, 331, 343, 346, 374 austerity pushed by, 186, 232 banks of, 202, 203, 231–32, 373 costs to taxpayers of, 184 as creditor, 140, 187, 267 debt collection by, 117 debt in, 105 and debt restructuring, 205, 311 in departure from eurozone, 32, 292–93 as dependent on Russian gas, 37 desire to leave eurozone, 314 ECB criticized by, 164 EU economic practices controlled by, 17 euro creation regretted in, 340 exchange rate of, 254–55, 351 failure of, 13, 78–79 flexible exchange of, 304 GDP of, xviii, 92 in Great Depression, 187 growing poverty in, 79 growth of, 78, 106, 247 hours worked per worker in, 72 inequality in, 79, 333 inflation in, 42, 338, 358 internal solidarity of, 334 lack of alternative to euro seen by, 11 migrants to, 320–21, 334–35, 393 minimum wage in, 42, 120, 254 neoliberalism in, 10 and place-based debt, 136 productivity in, 71 programs designed by, 53, 60, 61, 202, 336, 338 reparations paid by, 187 reunification of, 6 rules as important to, 57, 241–42, 262 share of global employment in, 224 shrinking working-age population of, 70, 78–79 and Stability and Growth Pact, 245 and structural reforms, 19–20 “there is no alternative” and, 306, 311–12 trade surplus of, 117, 118–19, 120, 139, 253, 293, 299, 350–52, 381–82, 391 “transfer union” rejected by, 22 US loans to, 187 victims blamed by, 9, 15–17, 177–78, 309 wages constrained by, 41, 42–43 wages lowered in, 105, 333 global financial crisis, xi, xiii–xiv, 3, 12, 17, 24, 67, 73, 75, 114, 124, 146, 148, 274, 364, 387 and central bank independence, 157–58 and confidence, 280 and cost of failure of financial institutions, 131 lessons of, 249 monetary policy in, 151 and need for structural reform, 214 originating in US, 65, 68, 79–80, 112, 128, 296, 302 globalization, 51, 321–23 and diminishing share of employment in advanced countries, 224 economic vs. political, xvii failures of, xvii Globalization and Its Discontents (Stig-litz), 234, 335, 369 global savings glut, 257 global secular stagnation, 120 global warming, 229–30, 251, 282, 319 gold, 257, 275, 277, 345 Goldman Sachs, 158, 366 gold standard, 148, 291, 347, 358 in Great Depression, xii, 100 goods: free movement of, 40, 143, 260–61 nontraded, 102, 103, 169, 213, 217, 359 traded, 102, 103, 216 Gordon, Robert, 251 governance, 157–63, 258–59 government spending, trade deficits and, 107–8 gravity principle, 124, 127–28 Great Depression, 42, 67, 105, 148, 149, 168, 313 Friedman on causes of, 151 gold standard in, xii, 100 Great Malaise, 264 Greece, 14, 30, 41, 64, 81, 100, 117, 123, 142, 160, 177, 265–66, 278, 307, 331, 343, 366, 367–68, 374–75, 386 austerity opposed by, 59, 60–62, 69–70, 207–8, 392 balance of payments, 219 banks in, 200–201, 228–29, 231, 270, 276, 367, 368 blaming of, 16, 17 bread in, 218, 230 capital controls in, 390 consumption tax and, 193–94 counterfactual scenario of, 80 current account surplus of, 287–88 and debt restructuring, 205–7 debt-to-GDP ratio of, 231 debt write-offs in, 291 decline in labor costs in, 56, 103 ECB’s cutting of funds to, 59 economic growth in, 215, 247 emigration from, 68–69 fiscal deficits in, 16, 186, 215, 233, 285–86, 289 GDP of, xviii, 183, 309 hours worked per worker in, 72 inequality in, 72 inherited debt in, 134 lack of faith in democracy in, 312–13 living standards in, 216 loans in, 127 loans to, 310 migrants and, 320–21 milk in, 218, 223, 230 new currency in, 291, 300 oligarchs in, 16, 227 output per working-age person in, 70–71 past downturns in, 235–36 pensions in, 16, 78, 188, 197–98, 226 pharmacies in, 218–20 population decline in, 69, 89 possible exit from eurozone of, 124, 197, 273, 274, 275 poverty in, 226, 261, 376 primary surplus of, 187–88, 312 privatization in, 55, 195–96 productivity in, 71, 342 programs imposed on, xv, 21, 27, 60–62, 140, 155–56, 179–80, 181, 182–83, 184–85, 187–88, 190–93, 195–96, 197–98, 202–3, 205, 206, 214–16, 218–23, 225–28, 229, 230, 231, 233–34, 273, 278, 308, 309–11, 312, 315–16, 336, 338 renewable energy in, 193, 229 social capital destroyed in, 78 sovereign spread of, 200 spread in, 332 and structural reforms, 20, 70, 188, 191 tax revenue in, 16, 142, 192, 227, 367–368 tools lacking for recovery of, 246 tourism in, 192, 286 trade deficits in, 81, 194, 216–17, 222, 285–86 unemployment in, xi, 71, 236, 267, 332, 338, 342 urgency in, 214–15 victim-blaming of, 309–11 wages in, 216–17 youth unemployment in, xi, 332 Greek bonds, 116, 126 interest rates on, 4, 114, 181–82, 201–2, 323 restructuring of, 206–7 green investments, 260 Greenspan, Alan, 251, 359, 363 Grexit, see Greece, possible exit from eurozone of grocery stores, 219 gross domestic product (GDP), xvii decline in, 3 measurement of, 341 Growth and Stability Pact, 87 hedge funds, 282, 363 highways, 41 Hitler, Adolf, 338, 358 Hochtief, 367–68 Hoover, Herbert, 18, 95 human capital, 78, 137 human rights, 44–45, 319 Hungary, 46, 331, 338 hysteresis, 270 Iceland, 44, 111, 307, 354–55 banks in, 91 capital controls in, 390 ideology, 308–9, 315–18 imports, 86, 88, 97–99, 98, 107 incentives, 158–59 inclusive capitalism, 317 income, unemployment and, 77 income tax, 45 Independent Commission for the Reform of International Corporate Taxation, 376–377 Indonesia, 113, 230–31, 314, 350, 364, 378 industrial policies, 138–39, 301 and restructuring, 217, 221, 223–25 Industrial Revolution, 3, 224 industry, 89 inequality, 45, 72–73, 333 aggregate demand lowered by, 212 created by central banks, 154 ECB’s creation of, 154–55 economic performance affected by, xvii euro’s increasing of, xviii growth’s lowering of, 212 hurt by collective action, 338 increased by neoliberalism, xviii increase in, 64, 154–55 inequality in, 72, 212 as moral issue, xviii in Spain, 72, 212, 225–26 and tax harmonization, 260–61 and tax system, 191 inflation, 277, 290, 314, 388 in aftermath of tech bubble, 251 bonds and, 161 central banks and, 153, 166–67 consequences of fixation on, 149–50, 151 costs of, 270 and debt monetization, 42 ECB and, 8, 25, 97, 106, 115, 145, 146–50, 151, 163, 165, 169–70, 172, 255, 256, 266 and food prices, 169 in Germany, 42, 338, 358 interest rates and, 43–44 in late 1970s, 168 and natural rate hypothesis, 172–73 political decisions and, 146 inflation targeting, 157, 168–70, 364 information, 335 informational capital, 77 infrastructure, xvi–xvii, 47, 137, 186, 211, 255, 258, 265, 268, 300 inheritance tax, 368 inherited debt, 134 innovation, 138 innovation economy, 317–18 inputs, 217 instability, xix institutions, 93, 247 poorly designed, 163–64 insurance, 355–356 deposit, see deposit insurance mutual, 247 unemployment, 91, 186, 246, 247–48 integration, 322 interest rates, 43–44, 86, 282, 345, 354 in aftermath of tech bubble, 251 ECB’s determination of, 85–86, 152, 249, 302, 348 and employment, 94 euro’s lowering of, 235 Fed’s lowering of, 150 on German bonds, 114 on Greek bonds, 4, 114, 181–82 on Italian bonds, 114 in late 1970s, 168 long-term, 151, 200 negative, 316, 348–49 quantitative easing and, 151, 170 short-term, 249 single, eurozone’s entailing of, 8, 85–88, 92, 93, 94, 105, 129, 152, 240, 244, 249 on Spanish bonds, 114, 199 spread in, 332 stock prices increased by, 264 at zero lower bound, 106 intermediation, 258 internal devaluation, 98–109, 122, 126, 220, 255, 388 supply-side effects of, 99, 103–4 International Commission on the Measurement of Economic Performance and Social Progress, 79, 341 International Labor Organization, 56 International Monetary Fund (IMF), xv, xvii, 10, 17, 18, 55, 61, 65–66, 96, 111, 112–13, 115–16, 119, 154, 234, 289, 309, 316, 337, 349, 350, 370, 371, 381 and Argentine debt, 206 conditions of, 201 creation of, 105 danger of high taxation warnings of, 190 debt reduction pushed by, 95 and debt restructuring, 205, 311 and failure to restore credit, 201 global imbalances discussed by, 252 and Greek debts, 205, 206, 310–11 on Greek surplus, 188 and Indonesian crisis, 230–31, 364 on inequality’s lowering of growth, 212–13 Ireland’s socialization of losses opposed by, 156–57 mistakes admitted by, 262, 312 on New Mediocre, 264 Portuguese bailout of, 178–79 tax measures of, 185 investment, 76–77, 111, 189, 217, 251, 264, 278, 367 confidence and, 94 divergence in, 136–38 in education, 137, 186, 211, 217, 251, 255, 300 infrastructure in, xvi–xvii, 47, 137, 186, 211, 255, 258, 265, 268, 300 lowered by disintermediation, 258 public, 99 real estate, 199 in renewable energy, 229–30 return on, 186, 245 stimulation of, 94 in technology, 137, 138–39, 186, 211, 217, 251, 258, 265, 300 investor state dispute settlement (ISDS), 393–94 invisible hand, xviii Iraq, refugees from, 320 Iraq War, 36, 37 Ireland, 14, 16, 44, 113, 114–15, 122, 178, 234, 296, 312, 331, 339–40, 343, 362 austerity opposed in, 207 debt of, 196 emigrants from, 68–69 GDP of, 18, 231 growth in, 64, 231, 247, 340 inherited debt in, 134 losses socialized in, 134, 156–57, 165 low debt in, 88 real estate bubble in, 108, 114–15, 126 surplus in, 17, 88 taxes in, 142–43, 376 trade deficits in, 119 unemployment in, 178 irrational exuberance, 14, 114, 116–17, 149, 334, 359 ISIS, 319 Italian bonds, 114, 165, 323 Italy, 6, 14, 16, 120, 125, 331, 343 austerity opposed in, 59 GDP per capita in, 352 growth in, 247 sovereign spread of, 200 Japan, 151, 333, 342 bubble in, 359 debt of, 202 growth in, 78 quantitative easing used by, 151, 359 shrinking working-age population of, 70 Java, unemployment on, 230 jobs gap, 120 Juncker, Jean-Claude, 228 Keynes, John Maynard, 118, 120, 172, 187, 351 convergence policy suggested by, 254 Keynesian economics, 64, 95, 108, 153, 253 King, Mervyn, 390 knowledge, 137, 138–39, 337–38 Kohl, Helmut, 6–7, 337 krona, 287 labor, marginal product of, 356 labor laws, 75 labor markets, 9, 74 friction in, 336 reforms of, 214, 221 labor movement, 26, 40, 125, 134–36, 320 austerity and, 140 capital flows and, 135 see also migration labor rights, 56 Lamers, Karl, 314 Lancaster, Kelvin, 27 land tax, 191 Latin America, 10, 55, 95, 112, 202 lost decade in, 168 Latvia, 331, 346 GDP of, 92 law of diminishing returns, 40 learning by doing, 77 Lehman Brothers, 182 lender of last resort, 85, 362, 368 lending, 280, 380 discriminatory, 283 predatory, 274, 310 lending rates, 278 leverage, 102 Lichtenstein, 44 Lipsey, Richard, 27 liquidity, 201, 264, 278, 354 ECB’s expansion of, 256 lira, 14 Lithuania, 331 living standards, 68–70 loans: contraction of, 126–27, 246 nonperforming, 241 for small and medium-size businesses, 246–47 lobbyists, from financial sector, 132 location, 76 London interbank lending rate (LIBOR), 131, 355 Long-Term Refinancing Operation, 360–361 Lucas, Robert, xi Luxembourg, 6, 94, 142–43, 331, 343 as tax avoidance center, 228, 261 luxury cars, 265 Maastricht Treaty, xiii, 6, 87, 115, 146, 244, 298, 339, 340 macro-prudential regulations, 249 Malta, 331, 340 manufacturing, 89, 223–24 market failures, 48–49, 86, 148, 149, 335 rigidities, 101 tax policy’s correction of, 193 market fundamentalism, see neoliberalism market irrationality, 110, 125–26, 149 markets, limitations of, 10 Meade, James, 27 Medicaid, 91 medical care, 196 Medicare, 90, 91 Mellon, Andrew, 95 Memorandum of Agreement, 233–34 Merkel, Angela, 186 Mexico, 202, 369 bailout of, 113 in NAFTA, xiv Middle East, 321 migrant crisis, 44 migration, 26, 40, 68–69, 90, 125, 320–21, 334–35, 342, 356, 393 unemployment and, 69, 90, 135, 140 see also labor movement military power, 36–37 milk, 218, 223, 230 minimum wage, 42, 120, 254, 255, 351 mining, 257 Mississippi, GDP of, 92 Mitsotakis, Constantine, 377–78 Mitsotakis, Kyriakos, 377–78 Mitterrand, François, 6–7 monetarism, 167–68, 169, 364 monetary policy, 24, 85–86, 148, 264, 325, 345, 364 as allegedly technocratic, 146, 161–62 conservative theory of, 151, 153 in early 1980s US, 168, 210 flexibility of, 244 in global financial crisis, 151 political nature of, 146, 153–54 recent developments in theory of, 166–73 see also interest rates monetary union, see single currencies money laundering, 354 monopolists, privatization and, 194 moral hazard, 202, 203 mortgage rates, 170 mortgages, 302 multinational chains, 219 multinational development banks, 137 multinationals, 127, 223, 376 multipliers, 211–12, 248 balanced-budget, 188–90, 265 Mundell, Robert, 87 mutual insurance, 247 mutualization of debt, 242–43, 263 national development banks, 137–38 natural monopolies, 55 natural rate hypothesis, 172 negative shocks, 248 neoliberalism, xvi, 24–26, 33, 34, 98–99, 109, 257, 265, 332–33, 335, 354 on bubbles, 381 and capital flows, 28 and central bank independence, 162–63 in Germany, 10 inequality increased by, xviii low inflation desired by, 147 recent scholarship against, 24 Netherlands, 6, 44, 292, 331, 339–40, 343 European Constitution referendum of, 58 New Democracy Party, Greek, 61, 185, 377–78 New Mediocre, 264 New World, 148 New Zealand, 364 Nokia, 81, 234, 297 nonaccelerating inflation rate of unemployment (NAIRU), 379–80 nonaccelerating wage rate of unemployment (NAWRU), 379–80 nongovernmental organizations (NGOs), 276 nonperforming loans, 241 nontraded goods sector, 102, 103, 169, 213, 217, 359 North American Free Trade Agreement (NAFTA), xiv North Atlantic Treaty Organization (NATO), 196 Norway, 12, 44, 307 referendum on joining EU, 58 nuclear deterrence, 38 Obama, Barack, 319 oil, import of, 230 oil firms, 36 oil prices, 89, 168, 259, 359 oligarchs: in Greece, 16, 227 in Russia, 280 optimal currency area, 345 output, 70–71, 111 after recessions, 76 Outright Monetary Transactions program, 361 overregulate, 132 Oxfam, 72 panic of 1907, 147 Papandreou, Andreas, 366 Papandreou, George, xiv, 60–61, 184, 185, 220, 221, 226–27, 309, 312, 366, 373 reform of banks suggested by, 229 paradox of thrift, 120 peace, 34 pensions, 9, 16, 78, 177, 188, 197–98, 226, 276, 370 People’s Party, Portugal, 392 periphery, 14, 32, 171, 200, 296, 301, 318 see also specific countries peseta, 14 pharmacies, 218–20 Phishing for Phools (Akerlof and Shiller), 132 physical capital, 77–78 Pinochet, Augusto, 152–53 place-based debt, 134, 242 Pleios, George, 377 Poland, 46, 333, 339 assistance to, 243 in Iraq War, 37 police, 41 political integration, xvi, 34, 35 economic integration vs., 51–57 politics, economics and, 308–18 pollution, 260 populism, xx Portugal, 14, 16, 64, 177, 178, 331, 343, 346 austerity opposed by, 59, 207–8, 315, 332, 392 GDP of, 92 IMF bailout of, 178–79 loans in, 127 poverty in, 261 sovereign spread of, 200 Portuguese bonds, 179 POSCO, 55 pound, 287, 335, 346 poverty, 72 in Greece, 226, 261 in Portugal, 261 in Spain, 261 predatory lending, 274, 310 present discount value, 343 Price of Inequality, The (Stiglitz), 154 prices, 19, 24 adjustment of, 48, 338, 361 price stability, 161 primary deficit, 188, 389 primary surpluses, 187–88 private austerity, 126–27, 241–42 private sector involvement, 113 privatization, 55, 194–96, 369 production costs, 39, 43, 50 production function, 343 productivity, 71, 332, 348 in manufacturing, 223–24 after recessions, 76–77 programs, 17–18 Germany’s design of, 53, 60, 61, 187–88, 205, 336, 338 imposed on Greece, xv, 21, 27, 60–62, 140, 155–56, 179–80, 181, 182–83, 184–85, 187–88, 190–93, 195–96, 197–98, 202–3, 205, 206, 214–16, 218–23, 225–28, 229, 230, 231, 233–34, 273, 278, 308, 309–11, 312, 315–16, 336, 338 of Troika, 17–18, 21, 155–57, 179–80, 181, 182–83, 184–85, 187–93, 196, 202, 205, 207, 208, 214–16, 217, 218–23, 225–28, 229, 231, 233–34, 273, 278, 308, 309–11, 312, 313, 314, 315–16, 323–24, 346, 366, 379, 392 progressive automatic stabilizers, 244 progressive taxes, 248 property rights, 24 property taxes, 192–93, 227 public entities, 195 public goods, 40, 337–38 quantitative easing (QE), 151, 164, 165–66, 170–72, 264, 359, 361, 386 railroads, 55 Reagan, Ronald, 168, 209 real estate bubble, 25, 108, 109, 111, 114–15, 126, 148, 172, 250, 301, 302 cause of, 198 real estate investment, 199 real exchange rate, 105–6, 215–16 recessions, recovery from, 94–95 recovery, 76 reform, 75 theories of, 27–28 regulations, 24, 149, 152, 162, 250, 354, 355–356, 378 and Bush administration, 250–51 common, 241 corporate opposition to, xvi difficulties in, 132–33 of finance, xix forbearance on, 130–31 importance of, 152–53 macro-prudential, 249 in race to bottom, 131–34 Reinhardt, Carmen, 210 renewable energy, 193, 229–30 Republican Party, US, 319 research and development (R&D), 77, 138, 217, 251, 317–18 Ricardo, David, 40, 41 risk, 104, 153, 285 excessive, 250 risk markets, 27 Rogoff, Kenneth, 210 Romania, 46, 331, 338 Royal Bank of Scotland, 355 rules, 57, 241–42, 262, 296 Russia, 36, 264, 296 containment of, 318 economic rents in, 280 gas from, 37, 81, 93, 378 safety nets, 99, 141, 223 Samaras, Antonis, 61, 309, 377 savings, 120 global, 257 savings and loan crisis, 360 Schäuble, Wolfgang, 57, 220, 314, 317 Schengen area, 44 schools, 41, 196 Schröeder, Gerhard, 254 self-regulation, 131, 159 service sector, 224 shadow banking system, 133 shareholder capitalism, 21 Shiller, Rob, 132, 359 shipping taxes, 227, 228 short-termism, 77, 258–59 Silicon Valley, 224 silver, 275, 277 single currencies: conflicts and, 38 as entailing fixed exchange rates, 8, 42–43, 46–47, 86–87, 92, 93, 94, 97–98 external imbalances and, 97–98 and financial crises, 110–18 integration and, 45–46, 50 interest rates and, 8, 86, 87–88, 92, 93, 94 Mundell’s work on, 87 requirements for, 5, 52–53, 88–89, 92–94, 97–98 and similarities among countries, 15 trade integration vs., 393 in US, 35, 36, 88, 89–92 see also euro single-market principle, 125–26, 231 skilled workers, 134–35 skills, 77 Slovakia, 331 Slovenia, 331 small and medium-sized enterprises (SMEs), 127, 138, 171, 229 small and medium-size lending facility, 246–47, 300, 301, 382 Small Business Administration, 246 small businesses, 153 Smith, Adam, xviii, 24, 39–40, 41 social cohesion, 22 Social Democratic Party, Portugal, 392 social program, 196 Social Security, 90, 91 social solidarity, xix societal capital, 77–78 solar energy, 193, 229 solidarity fund, 373 solidarity fund for stabilization, 244, 254, 264, 301 Soros, George, 390 South Dakota, 90, 346 South Korea, 55 bailout of, 113 sovereign risk, 14, 353 sovereign spreads, 200 sovereign wealth funds, 258 Soviet Union, 10 Spain, 14, 16, 114, 177, 178, 278, 331, 335, 343 austerity opposed by, 59, 207–8, 315 bank bailout of, 179, 199–200, 206 banks in, 23, 186, 199, 200, 242, 270, 354 debt of, 196 debt-to-GDP ratio of, 231 deficits of, 109 economic growth in, 215, 231, 247 gold supply in, 277 independence movement in, xi inequality in, 72, 212, 225–26 inherited debt in, 134 labor reforms proposed for, 155 loans in, 127 low debt in, 87 poverty in, 261 real estate bubble in, 25, 108, 109, 114–15, 126, 198, 301, 302 regional independence demanded in, 307 renewable energy in, 229 sovereign spread of, 200 spread in, 332 structural reform in, 70 surplus in, 17, 88 threat of breakup of, 270 trade deficits in, 81, 119 unemployment in, 63, 161, 231, 235, 332, 338 Spanish bonds, 114, 199, 200 spending, cutting, 196–98 spread, 332 stability, 147, 172, 261, 301, 364 automatic, 244 bubble and, 264 central banks and, 8 as collective action problem, 246 solidarity fund for, 54, 244, 264 Stability and Growth Pact, 245 standard models, 211–13 state development banks, 138 steel companies, 55 stock market, 151 stock market bubble, 200–201 stock market crash (1929), 18, 95 stock options, 259, 359 structural deficit, 245 Structural Funds, 243 structural impediments, 215 structural realignment, 252–56 structural reforms, 9, 18, 19–20, 26–27, 214–36, 239–71, 307 from austerity to growth, 263–65 banking union, 241–44 and climate change, 229–30 common framework for stability, 244–52 counterproductive, 222–23 debt restructuring and, 265–67 of finance, 228–29 full employment and growth, 256–57 in Greece, 20, 70, 188, 191, 214–36 growth and, 232–35 shared prosperity and, 260–61 and structural realignment, 252–56 of trade deficits, 216–17 trauma of, 224 as trivial, 214–15, 217–20, 233 subsidiarity, 8, 41–42, 263 subsidies: agricultural, 45, 197 energy, 197 sudden stops, 111 Suharto, 314 suicide, 82, 344 Supplemental Nutrition Assistance Program (SNAP), 91 supply-side effects: in Greece, 191, 215–16 of investments, 367 surpluses, fiscal, 17, 96, 312, 379 primary, 187–88 surpluses, trade, see trade surpluses “Swabian housewife,” 186, 245 Sweden, 12, 46, 307, 313, 331, 335, 339 euro referendum of, 58 refugees into, 320 Switzerland, 44, 307 Syria, 321, 342 Syriza party, 309, 311, 312–13, 315, 377 Taiwan, 55 tariffs, 40 tax avoiders, 74, 142–43, 227–28, 261 taxes, 142, 290, 315 in Canada, 191 on capital, 356 on carbon, 230, 260, 265, 368 consumption, 193–94 corporate, 189–90, 227, 251 cross-border, 319, 384 and distortions, 191 in EU, 8, 261 and fiat currency, 284 and free mobility of goods and capital, 260–61 in Greece, 16, 142, 192, 193–94, 227, 367–68 ideal system for, 191 IMF’s warning about high, 190 income, 45 increase in, 190–94 inequality and, 191 inheritance, 368 land, 191 on luxury cars, 265 progressive, 248 property, 192–93, 227 Reagan cuts to, 168, 210 shipping, 227, 228 as stimulative, 368 on trade surpluses, 254 value-added, 190, 192 tax evasion, in Greece, 190–91 tax laws, 75 tax revenue, 190–96 Taylor, John, 169 Taylor rule, 169 tech bubble, 250 technology, 137, 138–39, 186, 211, 217, 251, 258, 265, 300 and new financial system, 274–76, 283–84 telecoms, 55 Telmex, 369 terrorism, 319 Thailand, 113 theory of the second best, 27–28, 48 “there is no alternative” (TINA), 306, 311–12 Tocqueville, Alexis de, xiii too-big-to-fail banks, 360 tourism, 192, 286 trade: and contractionary expansion, 209 US push for, 323 trade agreements, xiv–xvi, 357 trade balance, 81, 93, 100, 109 as allegedly self-correcting, 98–99, 101–3 and wage flexibility, 104–5 trade barriers, 40 trade deficits, 89, 139 aggregate demand weakened by, 111 chit solution to, 287–88, 290, 299–300, 387, 388–89 control of, 109–10, 122 with currency pegs, 110 and fixed exchange rates, 107–8, 118 and government spending, 107–8, 108 of Greece, 81, 194, 215–16, 222, 285–86 structural reform of, 216–17 traded goods, 102, 103, 216 trade integration, 393 trade surpluses, 88, 118–21, 139–40, 350–52 discouragement of, 282–84, 299–300 of Germany, 118–19, 120, 139, 253, 293, 299, 350–52, 381–82, 391 tax on, 254, 351, 381–82 Transatlantic Trade and Investment Partnership, xv, 323 transfer price system, 376 Trans-Pacific Partnership, xv, 323 Treasury bills, US, 204 Trichet, Jean-Claude, 100–101, 155, 156, 164–65, 251 trickle-down economics, 362 Troika, 19, 20, 26, 55, 56, 58, 60, 69, 99, 101–3, 117, 119, 135, 140–42, 178, 179, 184, 195, 274, 294, 317, 362, 370–71, 373, 376, 377, 386 banks weakened by, 229 conditions of, 201 discretion of, 262 failure to learn, 312 Greek incomes lowered by, 80 Greek loan set up by, 202 inequality created by, 225–26 poor forecasting of, 307 predictions by, 249 primary surpluses and, 187–88 privatization avoided by, 194 programs of, 17–18, 21, 155–57, 179–80, 181, 182–83, 184–85, 187–93, 196, 197–98, 202, 204, 205, 207, 208, 214–16, 217, 218–23, 225–28, 229, 231, 233–34, 273, 278, 308, 309–11, 312, 313, 314, 315–16, 323–24, 348, 366, 379, 392 social contract torn up by, 78 structural reforms imposed by, 214–16, 217, 218–23, 225–38 tax demand of, 192 and tax evasion, 367 see also European Central Bank (ECB); European Commission; International Monetary Fund (IMF) trust, xix, 280 Tsipras, Alexis, 61–62, 221, 273, 314 Turkey, 321 UBS, 355 Ukraine, 36 unemployment, 3, 64, 68, 71–72, 110, 111, 122, 323, 336, 342 as allegedly self-correcting, 98–101 in Argentina, 267 austerity and, 209 central banks and, 8, 94, 97, 106, 147 ECB and, 163 in eurozone, 71, 135, 163, 177–78, 181, 331 and financing investments, 186 in Finland, 296 and future income, 77 in Greece, xi, 71, 236, 267, 331, 338, 342 increased by capital, 264 interest rates and, 43–44 and internal devaluation, 98–101, 104–6 migration and, 69, 90, 135, 140 natural rate of, 172–73 present-day, in Europe, 210 and rise of Hitler, 338, 358 and single currency, 88 in Spain, 63, 161, 231, 235, 332, 338 and structural reforms, 19 and trade deficits, 108 in US, 3 youth, 3, 64, 71 unemployment insurance, 91, 186, 246, 247–48 UNICEF, 72–73 unions, 101, 254, 335 United Kingdom, 14, 44, 46, 131, 307, 331, 332, 340 colonies of, 36 debt of, 202 inflation target set in, 157 in Iraq War, 37 light regulations in, 131 proposed exit from EU by, 4, 270 United Nations, 337, 350, 384–85 creation of, 38 and lower rates of war, 196 United States: banking system in, 91 budget of, 8, 45 and Canada’s 1990 expansion, 209 Canada’s free trade with, 45–46, 47 central bank governance in, 161 debt-to-GDP of, 202, 210–11 financial crisis originating in, 65, 68, 79–80, 128, 296, 302 financial system in, 228 founding of, 319 GDP of, xiii Germany’s borrowing from, 187 growing working-age population of, 70 growth in, 68 housing bubble in, 108 immigration into, 320 migration in, 90, 136, 346 monetary policy in financial crisis of, 151 in NAFTA, xiv 1980–1981 recessions in, 76 predatory lending in, 310 productivity in, 71 recovery of, xiii, 12 rising inequality in, xvii, 333 shareholder capitalism of, 21 Small Business Administration in, 246 structural reforms needed in, 20 surpluses in, 96, 187 trade agenda of, 323 unemployment in, 3, 178 united currency in, 35, 36, 88, 89–92 United States bonds, 350 unskilled workers, 134–35 value-added tax, 190, 192 values, 57–58 Varoufakis, Yanis, 61, 221, 309 velocity of circulation, 167 Venezuela, 371 Versaille, Treaty of, 187 victim blaming, 9, 15–17, 177–78, 309–11 volatility: and capital market integration, 28 in exchange rates, 48–49 Volcker, Paul, 157, 168 wage adjustments, 100–101, 103, 104–5, 155, 216–17, 220–22, 338, 361 wages, 19, 348 expansionary policies on, 284–85 Germany’s constraining of, 41, 42–43 lowered in Germany, 105, 333 wage stagnation, in Germany, 13 war, change in attitude to, 38, 196 Washington Consensus, xvi Washington Mutual, 91 wealth, divergence in, 139–40 Weil, Jonathan, 360 welfare, 196 West Germany, 6 Whitney, Meredith, 360 wind energy, 193, 229 Wolf, Martin, 385 worker protection, 56 workers’ bargaining rights, 19, 221, 255 World Bank, xv, xvii, 10, 61, 337, 357, 371 World Trade Organization, xiv youth: future of, xx–xxi unemployment of, 3, 64, 71 Zapatero, José Luis Rodríguez, xiv, 155, 362 zero lower bound, 106 ALSO BY JOSEPH E.

End the Fed
by Ron Paul
Published 5 Feb 2011

Bernanke closed his remarks by directly addressing Friedman: “You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.” The fault indeed does lie with the Federal Reserve—but obviously for opposite reasons. It was the credit expansion of the 1920s causing the stock market bubble that was the real cause of the crash. The crash was then compounded by the necessary corrections being interfered with by both Hoover and FDR and the concurrent Congresses. Bernanke may be serious and believe he can prevent the consequences of the Fed’s mistakes of the past several decades. But he is wrong.

Accelerando
by Stross, Charles
Published 22 Jan 2005

. "– Give him sixty-four doubling times, hmm, add a delay factor for propagation across the system, call it six light-hours across, um, and I'd say … " she looks at Sirhan. "Oh dear." "What?" The orang-utan explains: "Economics 2.0 is more efficient than any human-designed resource allocation schema. Expect a market bubble and crash within twelve hours." "More than that," says Amber, idly kicking at a tussock of grass. She squints at Sirhan. "My mother is dead," she remarks quietly. Louder: "She never really asked what we found beyond the router. Neither did you, did you? The Matrioshka brains – it's a standard part of the stellar life cycle.

…

Manfred declines a refill, waiting for Gianni to drink. "Ah, the simple pleasures of the flesh! I've been corresponding with your daughter, Manny. She loaned me her experiential digest of the journey to Hyundai +4904/-56. I found it quite alarming. Nobody's casting aspersions on her observations, not after that self-propelled stock market bubble or 419 scam or whatever it was got loose in the Economics 2.0 sphere, but the implications – the Vile Offspring will eat the solar system, Manny. Then they'll slow down. But where does that leave us, I ask you? What is there for orthohumans like us to do?" Manfred nods thoughtfully. "You've heard the argument between the accelerationistas and the time-binder faction, I assume?"

The Volatility Smile
by Emanuel Derman,Michael B.Miller
Published 6 Sep 2016

The only thing I could do was send him back an email, “I will not accept the Nuremberg excuse.” Comparing financial modelers to Nazi war criminals seems extreme, and indeed, since then, opinions about modelers’ responsibility for the financial meltdown have become more nuanced. Spain and Ireland developed housing market bubbles that, unlike those in the United States, were not inflated by complex financially engineered products. Paul Krugman has suggested that the root cause of the crisis lay in the West’s rapid withdrawal of capital from Asia after the currency crisis of 1998, leading Asian countries thereafter to concentrate on exporting, saving, and hoarding, which led them to provide cheap credit that fueled speculation.

…

See also Discrete hedging dynamic, 64, 204 dynamic replication for, 52, 53f error in, 110–114 frequency of, 99 as risk management strategy, 31–34 selection of volatility for, 203–204 and transaction costs, 118 of vanilla options, with smile models, 169–171 Hedging volatility, 105–110 Heston, Steven, 331 Heston model, 331, 369n.1 High-volatility down markets, 308 Hillel, 13 Hoggard, T., 125, 126 Housing market bubbles, 2 Hull, John, 325, 351, 352, 363 Hull-White stochastic volatility model, 325 Human behavior, 20–21, 417 Hysteresis, 19 Implied distribution, 175–183, 184f, 185–186 Breeden-Litzenberger formula in, 180–183, 184f, 185–186 and state-contingent securities, 175–180 Implied variables, 51–52 Implied variance, 279–280 505 Index Implied volatility: in Black-Scholes-Merton model, 80 constraints on, 158–159 and equity indexes, 146, 148 and hedged options, 94 hedged option strategies with, 101–103 in jump-diffusion models, 414 local vs., 257–262, 278–286 realized vs., 50–51, 115–116 in smile models, 164 up-and-out barrier calls with no, 295–296 and volatility smile, 131–133 Implied volatility function, 164–165 Implied volatility smile, 3–5 Incremental profit and loss, 95–96 Index options, and local volatility, 306–308 Indicator function, 190 Individual equities, and the smile, 148–149 Inequalities: Merton, for European option prices, 154–158 for smile slope of no-arbitrage bounds, 158–160 Instantaneous variance, 364, 380 Instantaneous volatility, 364 Integration by parts, 427–429 Interest rates: modeling of, 164 Vasiçek interest rate model, 334 volatility smile of, 151 Intuition, and financial models, 11 Irrational exuberance, 311 Itô integrals, backward, 92–93, 421–429 Itô’s lemma: changes in option values with, 347 hedged options, 86 instantaneous variance in, 364 for profit and loss, 97–98 in stochastic volatility models, 345 variance swaps, 74 Jarrow-Rudd convention, 231–232, 271 JPMorgan Chase & Co., 7 JPY (Japanese yen), 149, 150f Jump(s), 383–384 accounting for, in jump-diffusion models, 168 calibration and compensation for, 387–391 plus diffusion, 395–398 Poisson distribution of, 391–393 as random dividends, 396 skew arising from, 384–387 and variance swaps, 81–82 in volatility, due to market behavior, 326–327 Jump-diffusion models, 168, 383–416 calibration and compensation for jumps, 387–391 call valuation in, 401–404 jumps, 383–384 jumps plus diffusion, 395–398 mixing formula in, 404–408 Poisson distribution of jumps, 391–393 pure jump risk-neutral option pricing, 393–394 qualitative description of jump-diffusion smile, 408–410 skew arising from jumps, 384–387 with small probability of large single jump, 410–415 trinomial jump-diffusion and calibration, 398–401 Jump-diffusion smile, 408–410, 414–415 Kamal, Michael, 316 Kani, Iraj, 268 Keynes, John Maynard, 6, 20–21 Krugman, Paul, 2 Laws, theorems vs., 6 Law of one price, 14–15 and investment risk, 24–25 and Sharpe ratio, 29 Law of quantitative finance, 13–15 Leland, Hayne E., 127 Leverage, in portfolio management, 29 Leverage effect, 165–166 Limitations: of diversification, 32 of replication, 16–17 Linear average approximation, 261 Lo, Andrew, 13 Local variance, 279–280 Local volatility: extension of, with stochastic volatility models, 320 implied vs., 257–262, 278–286 Local volatility function, 164–165 506 Local volatility models, 164–167, 249–308 advantages of, 303–304 barrier options in, 292–296 binomial, 250–257 binomial derivation of Dupire’s equation, 270–275 binomial tree difficulties, 262–263 disadvantages of, 304–306 Dupire’s equation for, 265–270 extension of, with stochastic volatility models, 337–344 formal proof of Dupire’s equation, 275–277 hedge ratios in, 289–292, 379 index options in, 306–308 local vs. implied volatility, 257–262, 278–286 lookback call options in, 297–301 modeling stock with variable volatility, 249–250 and volatility change patterns, 314–315 Log contracts: in Black-Scholes-Merton world, 70–71 and realized future variance, 71–82 with vanilla options, 67–71 Log payoffs, 67–71 Long call, 39f Long call, short stock, 39f Long call, short stock, long zero coupon bond, 39f Long expirations: jumps effects on, 384f, 385–386 and mean-reverting volatility, 371 Lookback call options, 297–301 Loss, from time decay, 52.

Company: A Short History of a Revolutionary Idea
by John Micklethwait and Adrian Wooldridge
Published 4 Mar 2003

The American people were furious: 70 percent of them said that they did not trust what their brokers or corporations told them and 60 percent called corporate wrongdoing “a widespread problem.”32 Even bosses who had not been caught doing anything wrong, such as Hank Paulson of Goldman Sachs and Andy Grove of Intel, felt obliged to apologize to the public for the sorry state of American capitalism.33 Meanwhile, in continental Europe, the two bosses who had most obviously proclaimed themselves disciples of the American way—Thomas Middelhoff of Germany’s Bertelsmann and Jean-Marie Messier of France’s Vivendi—were both sacked. The general catalyst for this revolution was the bursting of America’s stock-market bubble. Between March 2000 and July 2002, this destroyed $7 trillion in wealth—a sum equivalent to a quarter of the financial assets owned by Americans (and an eighth of their total wealth). The spread of mutual funds and the change from defined-benefit to defined-contribution retirement plans meant that this was a truly democratic crash: most of the households in America lost money directly.

Willful: How We Choose What We Do
by Richard Robb
Published 12 Nov 2019

Smith and Raskob raised money while the stock market crashed, broke ground on Saint Patrick’s Day in March 1930, and opened on May 1, 1931 (Berman, Empire State Building, 11). FOUR Making Money in Financial Markets 1. Stalwart believers in efficient markets will even deny the existence of market “bubbles.” In at least some cases, they’re right. For instance, most people believe that seventeenth-century Dutch traders lost their minds, bidding up the price of tulips to incredible heights and causing an economic crisis when prices finally collapsed. According to Peter Garber’s 1989 article debunking tulipmania, modern references to the tulip craze are based on a brief description from 1852 that drew in turn on unreliable secondary sources.

Capital in the Twenty-First Century
by Thomas Piketty
Published 10 Mar 2014

During the 1980s, the value of private wealth shot up in Japan from slightly more than four years of national income at the beginning of the decade to nearly seven at the end. Clearly, this enormous and extremely rapid increase was partly artificial: the value of private capital fell sharply in the early 1990s before stabilizing at around six years of national income from the mid-1990s on. I will not rehearse the history of the numerous real estate and stock market bubbles that inflated and burst in the rich countries after 1970, nor will I attempt to predict future bubbles, which I am quite incapable of doing in any case. Note, however, the sharp correction in the Italian real estate market in 1994–1995 and the bursting of the Internet bubble in 2000–2001, which caused a particularly sharp drop in the capital/income ratio in the United States and Britain (though not as sharp as the drop in Japan ten years earlier).

…

If certain immaterial investments (such as expenditures to increase the value of a brand or for research and development) are not counted on the balance sheet, then it is logical for the market value to be structurally greater than the book value. This may explain the ratios slightly greater than 1 observed in the United States (100–120 percent) and especially Britain (120–140 percent) in the late 1990s and 2000s. But these ratios greater than 1 also reflect stock market bubbles in both countries: Tobin’s Q fell rapidly toward 1 when the Internet bubble burst in 2001–2002 and in the financial crisis of 2008–2009 (see Figure 5.6). Conversely, if the stockholders of a company do not have full control, say, because they have to compromise in a long-term relationship with other “stakeholders” (such as worker representatives, local or national governments, consumer groups, and so on), as we saw earlier is the case in “Rhenish capitalism,” then it is logical that the market value should be structurally less than the book value.

…

In short, it seems unreasonable to draw such an extreme contrast between Gates and Slim without so much as a glance at the facts.20 As for the Japanese billionaires (Yoshiaka Tsutsumi and Taikichiro Mori) who from 1987 to 1994 preceded Bill Gates at the top of the Forbes ranking, people in the Western world have all but forgotten their names. Perhaps there is a feeling that these men owe their fortunes entirely to the real estate and stock market bubbles that existed at the time in the Land of the Rising Sun, or else to some not very savory Asian wheeling and dealing. Yet Japanese growth from 1950 to 1990 was the greatest history had ever seen to that point, much greater than US growth in 1990–2010, and there is reason to believe that entrepreneurs played some role in this.

Warren Buffett Accounting Book: Reading Financial Statements for Value Investing (Warren Buffett's 3 Favorite Books)
by Stig Brodersen and Preston Pysh
Published 30 Apr 2014

Now, there’s a huge debate about whether the Federal Reserve creates stability or instability for the economy by adjusting interest rates, but that’s not important. As an investor, the important thing to understand is that the FED purposely adjusts the interest rates to improve and slow the growth of the economy. Without controlling this rate, many argue the financial system(s) may collapse due to enormous market bubbles or lack of credit/cash in the system. Every time interest rates change, so does the disparity between price and value—therefore creating potential opportunities. As a stock investor, it is extremely important to keep an eye on the interest rate. You should act differently in the stock market when the interest is low compared to when it is high.

100 Baggers: Stocks That Return 100-To-1 and How to Find Them
by Christopher W Mayer
Published 21 May 2018

Comcast would eventually grow sales more than six times from 2001, as it continued to expand and acquire companies. “Big acquisitions during this time include: AT&T Broadband, Adelphia (50–50 with TIME Warner Cable) and a 51 percent stake of NBCUniversal,” Alejandro writes. An investor would have had to sit through a nasty fall as the 2000 stock market bubble burst. Comcast shares would give up about half their value from the peak to the trough in 2002. But then it was off to the races once again. An investor who held on through 2014 would’ve had a 188-bagger. This is a short case study, but it serves to highlight again the power of sales growth and the ability to see something beyond the reported earnings. 66 100-BAGGERS Netting a 100-bagger takes vision and tenacity and, often, a conviction in an idea that may not yet be obvious in the financials.

The Price of Inequality: How Today's Divided Society Endangers Our Future
by Joseph E. Stiglitz
Published 10 Jun 2012

International Trade in Goods and Services Highlights,” February 10, 2012, http://www.census.gov/indicator/www/ustrade.html (accessed March 6, 2012). 15. In the 1990s, we maintained a trade deficit and full employment, even with a government surplus; but the circumstances were unusual—an investment burst fueled by a stock market bubble (the tech bubble). And it was not sustainable. In chapter 8 we explained how one could stimulate the economy even within the confines of a limited budget deficit, but the politics of what is required (under current circumstances) may make even this unachievable. 16. Part of the reason for the trade imbalances is the role of the United States as a reserve currency.

…

government procurement, 40, 49, 101, 176, 210, 224 Great Depression, 5, 56–57, 90, 156–57, 175, 231, 233, 257, 267, 383, 385, 391 Great Recession 51, 70, 118, 165, 195, 227, 234 causes of, 197, 202, 252, 280 deficit consequences of, 207, 210–11 effects of, 1–2, 9–17, 27, 82, 91, 197, 238–39, 276–77, 287, 357, 383 ideological interpretations of, 157, 158, 161, 175 jobless recovery from, 244–45, 264 labor outcomes of, 57, 65, 124–25, 241–42, 250, 301, 380 monetary policy in, 240, 257–58 profit-making in, 29, 67, 110, 241 resource waste in, 90, 241 savings depleted by, 1, 13, 70 stimulus package in, 86, 211, 232–34, 236, 382 wage share in, 29, 57, 65, 67, 328 worsening of, 217, 230 see also financial crisis of 2008 Greece, 22, 142 financial crisis in, 138–39, 141, 182, 219–20, 231, 255, 316, 390 Greenspan, Alan, 48, 88, 208, 246, 248, 251, 258, 376, 387 gross domestic product (GDP), 182–85, 268 see also economy, U.S., gross domestic product in gross national product (GNP), 184–85 Güth, Werner, 126 Hacker, Jacob S., xxiv Halliburton Corporation, 101, 210, 272 Hammonds, Tim, 338 Harrison, John, 109 health care, 12, 44, 155, 222, 263 cost of, 10, 97, 109, 265, 273, 274, 276, 301, 317, 353, 378, 380 government assistance with, 14, 23, 31, 70, 74, 226, 276; see also Medicare inefficiency in, 176, 183, 228, 380, 395 Obama’s reform of, 14, 163, 276 racial discrimination in, 70, 303 health industry, 95, 97, 176 see also pharmaceutical industry Hemsley, Stephen, 42 Hewlett-Packard (HP), 203, 360 Hispanics: discrimination against, 68, 70, 328, 369 wealth of, 13, 329, 384 Holder, Eric, 199 homeownership, 76, 108, 152, 157, 161, 171, 223, 379 Hoover, Herbert, 231 House of Representatives, U.S., 93, 100, 134, 207 Financial Services Committee of, 136 see also Congress, U.S.; Senate, U.S. housing discrimination, 70–71, 308 housing market: bubble in, 54, 85, 88–89, 183, 191–93, 211, 232, 243, 262, 378, 388 collapse of, 3, 8, 13, 89, 91, 169, 198, 223, 285, 294, 296, 302, 311, 314, 363 recovery in, 284–85 see also foreclosures; mortgage restructuring; predatory lending; subprime crisis housing subsidies, 74 human rights, 59, 155 ideas: democracy and, 185 evolution of, 156–59, 160 immigration, 53, 227, 296 imprisonment, 15, 70, 303, 304–5 incentive pay, 78–79, 87, 107, 108–14, 153–54, 163, 173, 205, 342, 343, 347 income redistribution, 85, 211 criticisms of, xxii, 106 government’s role in, 30–31, 71–76, 155, 238, 279 political limitation of, 32, 77 India, 152–53, 196–97, 249 Industrial Revolution, 30, 105, 345 inequality: alternative models of, 81–82 consequences of, 83–117, 125, 133–35, 147, 148, 186, 187–206, 233 deficit reduction and, 221–24 determinants of, xii, 28, 30–31, 33–39, 79–82, 267, 271, 276 educational, xiv, 19, 20, 30–31, 68, 75, 94, 102, 108, 160, 307–8, 322 efficiency and, 106–16, 117 globalization’s effect on, 60, 63–64, 79, 80, 140, 142, 144, 145 government’s role in, 6, 28, 30–32, 52, 57–58, 74, 75–76, 77, 79, 81, 82, 147, 153, 172–73, 190, 207 historical, 29–30, 332 income, 2, 3, 4, 7–8, 9, 22, 24, 25, 26, 27, 29, 30, 52, 53, 54, 55, 56, 57, 71, 72, 77, 79–80, 81, 85, 86, 127, 153, 178, 183, 202, 233, 240, 241, 267, 294–95, 296, 297, 298, 299, 300, 311, 328, 332, 335; see also income redistribution and instability, 5, 84–92, 117, 240 justifications for, 27, 29, 30, 77–78, 81, 154, 156, 342 lifetime, 26, 106, 310, 311 macroeconomic factors in, 238–64 markets’ effect on, 52–82 perceptions of, 127, 147–48, 152–55, 159, 160, 179, 184 remedies for, 29, 107, 114–17, 213, 237, 268–85, 287 rent seeking and, 32, 38, 40, 77, 107, 173, 213 and social distance, 148, 160 societal effects of, xii, xvi–xvii, xx, xxii, 2, 18, 20, 27, 65, 76, 84, 90, 100, 104–6, 117, 326–27 societal factors in, 53, 64–71, 82, 84, 282 inflation, 219, 239, 240, 241, 242, 248–49, 255, 259–60, 261, 262, 263, 279, 365, 378, 383, 384, 385, 391, 392, 393 Informant, The, 320 infrastructure, 88, 92, 93, 102, 115, 117, 155, 216, 267, 283 innovation: in business, 35, 41, 46, 78, 96, 178–79, 314, 315 direction of, 58, 244, 270, 283–84 patent law and, 43, 202 scientific, 41, 78, 93, 100, 202 insurance industry, 176, 177, 228, 274, 276 intellectual property, 140, 202–3, 316, 323, 354, 375 see also patents interest rates, 3, 7, 49, 71, 80, 86, 88, 110, 177, 208, 209, 217, 234, 242, 243, 244, 245, 251, 259, 260, 261, 262, 283, 380, 382, 385, 386, 392 International Monetary Fund (IMF), 60, 61, 91–92, 138, 141, 181–82, 231, 316, 353 Internet, 41, 45, 87, 115, 174, 349, 358 interns, internships, 76, 332 intrinsic rewards, 111–12 investment: globalization and, 60, 73, 74 private, 6, 73, 74, 86, 87, 88, 92, 222, 225, 226, 230, 235, 243, 244, 283, 335, 382 public, 23, 40, 80, 84, 88, 92–94, 102, 114, 115, 155, 174, 216, 217, 218, 230, 232–33, 263, 267, 273, 279, 281, 282–83, 381 Iran, 22, 23 Iraq War, 101, 143, 176, 209, 210, 211, 340 Ireland, financial crisis in, 182, 210, 219, 220, 255, 256 irrigation, 122, 322 Israel, 14, 262 Italy, 18 financial crisis in, 138–39, 255, 389–90 Japan, 14, 19, 308 Jobs, Steve, 41, 315 JPMorgan Chase, 345, 374, 388 judges, 44, 200, 373 Justice Department, U.S., 199, 318 Kerry, John, 359 Kessler, David, 357 Keynes, John Maynard, 86, 105, 151, 267 King, Mervyn, 248 Korea, 16, 19 Krueger and Mas, 104 Krugman, Paul, 137 labor, 55, 152 bargaining power of, 61, 64, 277, 281; see also labor unions demand for, 38, 53–57, 61, 63 in developing world, 63, 64, 326, 397 discrimination in, 68–70, 71 fairness in, 103–4, 127 free mobility of, 59–60, 61–62 globalization’s effect on, 56, 59–60, 61, 63, 64, 80, 233, 277, 280, 281, 324, 325 Great Recession’s effect on, 29, 57, 65, 67, 91, 124–25, 231, 241–42, 250, 380 macroeconomic policies affecting, 80, 225, 279 motivation of, 102, 103 polarization of, 8–9, 56, 79, 80, 133, 277 public-sector, 57, 322 in recessions, 29, 67, 124 and social capital, 124–25 structural changes in, 53–54, 56, 232–33, 263, 280–81, 285 technology’s effect on, 53, 54–56, 63, 79, 80, 277, 280, 283, 334 women in, 14 work hours and, 9, 14, 26, 327 see also employment; unemployment; wages labor unions, 38, 57, 64–65, 66, 67, 79, 80, 281–82, 327 Latin America, 23, 40, 84, 231 Latvia, austerity in, 231 Lauder, Ronald, 72 lawyers, 42–43, 99–101, 190, 203, 339 Lay, Ken, 178 legal system, U.S., 187–206 alternative frameworks for, 188, 202 banks’ deception in, 198, 199, 200, 201, 373 burden of proof in, 199–200 contracts in, 197 corporate advantages in, 66, 132, 189–90, 191, 203, 272, 327, 374 costs in, 100, 189–90, 202 distributive consequences of, 190, 193, 271, 317, 370 economic bias in, 44 Federal Reserve accountability in, 252 financial crisis prosecution in, xv–xvi, 70, 119, 199, 372, 373 financial sector’s favoring in, 191–202, 203, 204–6 information asymmetries in, 271, 368 political influence in, 44, 190–91, 200 property rights in, 190, 194, 197, 198, 199 purpose of, 100, 188–91 reform of, 273 rent seeking in, 42, 43, 203, 273 and social responsibility, 121 unfairness in, 42, 43, 100, 189–90, 191–202, 203, 206, 368, 373, 375 Lehman Brothers, 253, 313, 390 Leme, Paulo, 353 Lenin, Vladimir, 354 Lessig, Lawrence, xxiv LG, 203 Lincoln, Abraham, 137 List, John, 347 lobbying, 48, 95, 101, 185, 196, 319, 324, 325, 338 Lockheed Martin, 210 London Interbank Offered Rate (Libor), 47 Longitude (Sobel), 109 Lula da Silva, Luiz Inácio, 5, 139, 353 Luxembourg, 183, 286 manufacturing: compensation shifts in, 65, 328 job losses in, 54, 56, 57, 232–33, 285, 321 societal impact of, 156 marginal productivity theory, 30, 33, 77, 267 marketing, 150–51, 160, 162, 357, 359 Marlboro Man, 151, 354 marriage, economic insecurity and, 15, 303 Marshall, Alfred, 102 Marx, Karl, 30, 292 Massachusetts, 200–201 McCarty, Nolan, xxiv McDonald’s, 381 media, 128–29, 134, 135, 136, 160, 163, 252, 272, 286, 335, 348, 349, 358 Medicaid, 14, 228, 277, 378 Medicare, 17, 48, 97, 147, 163, 176, 210, 228–29, 265, 320, 355, 364, 378, 380 Mexico, 16, 42, 64, 138, 176, 365 MF Global Holdings, 313 microcredit, 196–97 Microsoft, 42, 44, 45–46, 74, 203, 317, 318, 319 middle class, 54, 117, 137 assistance to, 29, 274 economic insecurity of, xvii, 12–14, 23, 26, 103, 265–66 globalization’s effect on, 63, 64 Great Recession’s effect on, 10 hollowing out of, 2, 9, 25, 38, 84, 133, 300 income of, 3, 4, 7, 8, 9, 14, 25, 54, 56, 57, 63, 72, 240, 297, 298, 300, 385 recovery of, 29, 225 tax deductions for, 222–24, 379 unfair policies toward, xv, xxii wealth sources of, 3, 8, 13–14, 91, 167 Middle East, 40 see also Arab Spring Mill, John Stuart, 368 monetarism, 257, 258–59 monetary policy, 85, 86, 88, 133, 177, 208, 234, 239–40, 248, 250, 251, 252, 254, 257–58, 259, 261, 262, 263–64, 380, 382, 385, 389, 392 distributive consequences of, 243–45, 264, 279 idea-shaping in, 256–63 monopolies 31, 32, 35, 39–47, 95, 97, 140, 213, 270–71, 274, 316, 318 moral hazard, 171, 229, 256, 362, 363 Mortgage Electronic Registry System (MERS), 198, 201, 374 mortgage fraud, 198, 201, 372, 373 mortgage restructuring, 169–72, 201–2, 284–85, 362, 363 mortgages, tax deductions for, 222, 223, 379 mortgage securities, 205 Mosaic, 318 motivation, 102, 103, 111–12 Motorola, 203 Mozilo, Angelo, 333 Mueller, Edward, 42 Mullainathan, Sendhil, 103 municipal bonds, 212, 378 National Academy of Sciences, 26 National Center for Supercomputing Applications, 318 National Commission on the Causes of the Financial and Economic Crisis in the United States, 357, 358 National Economic Council, 180 Netherlands, 19, 22 Netscape, 45–46, 318 New Deal, xiii, 88, 231 Newfoundland, 138 New York Times, 11, 119, 205 Nokia, 203 North American Free Trade Agreement, 141 Norway, 22, 23, 183, 220 NTP, Inc., 203 Obama, Barack, x, 352 deficit reduction by, 207 and ethanol subsidy, 51 Federal Reserve nominees of, 319 financial crisis response of, xv, 168, 169, 361 health care program of, 14, 163, 276 tax position of, 395 Obama administration, xiv, 67, 170, 171, 200, 250, 284, 362, 396 Occupy Wall Street, ix–xiv, xix–xxi, 102, 116, 118, 127, 134, 345 “Of the 1%, for the 1%, by the 1%” (Stiglitz), xi Olin Foundation, 44, 359 1 percent: definition of, xxii economic framework’s favoring of, xx, xxii, 31, 34, 62, 67, 91, 117, 131, 142, 173, 174, 189, 191, 204, 239, 244, 245–46, 264, 348, 354 economic security of, 18, 19, 25 globalization’s benefits to, 62, 64, 142 idea-shaping by, 129, 134, 137, 146–86, 211, 236, 256, 287 income of, 2, 4, 8, 25, 52, 72, 85, 215, 267, 294, 295, 297, 298, 299, 300, 315, 332, 335 legal framework’s favoring of, 188, 191, 202, 206, 273 media’s control by, 129, 134, 286 political power of, xix, 32, 67, 83, 86, 89, 101, 118, 119, 120–21, 129, 131–33, 134, 137, 138, 146, 191, 267, 285, 348, 351 public perception of, 20–21, 146, 154, 159, 358 reform aimed at, 29, 268–74 rent seeking by, 32, 38, 41–43, 77 saving by, 85, 88, 223, 275 small government preference of, 93 social contract violation by, xvi–xvii social contributions of, 27, 41, 77–78, 96, 266 social norms’ shaping by, 53 taxation of, 5, 38, 42–43, 62, 71–73, 74, 76, 77, 84, 86, 87–88, 114, 115, 116, 138, 142, 159, 167, 208, 209, 211, 212, 214–15, 218, 221, 223, 224, 225, 226, 256, 274, 275, 294, 312, 335, 344, 360, 383, 394 value change in, 288 wealth of, 2, 3, 8, 25, 32, 38, 56, 72, 73, 80, 84, 166–67, 295 see also corporations; financial sector Organization for Economic Cooperation and Development (OECD), 16, 185 Orshansky, Mollie, 305 Ostrom, Elinor, 322 overdrafts, 194, 370 Pager, Devah, 69 Papua New Guinea, 184 patents, 43, 202, 203, 316, 374, 375 see also intellectual property pension funds, 227–28 Personal Responsibility and Work Opportunity Reconciliation Act, 17 Pew Foundation, 20 pharmaceutical industry: government munificence toward, 40, 48, 97, 210, 211, 224, 228, 272, 276 research in, 97 see also health industry Pierson, Paul, xxiv Piketty, Thomas, xxiii, 114 Pinochet, Augusto, 258 polarization, 8–9 Polarized America (McCarty, Poole, and Rosenthal), xxiv police lineups, 149 police states, 125 politics, U.S.: cognitive capture in, 161–62 corporate influence in, 34, 37, 41, 47, 48, 50, 51, 61, 62, 95, 99, 101, 111, 131–32, 135, 136–37, 200, 202, 285, 286, 319, 324, 325, 338, 350 distributive consequences of, 31, 52, 58, 239, 277, 278, 322 economy’s linkage with, xi, xix–xx, xxiv, 34, 38–39, 47, 52–53, 59, 65, 66, 89, 118, 131, 135, 138, 151, 173, 266, 287, 288–89, 348 idea-shaping in, 129, 137, 148, 149, 151–52, 153–55, 159–62, 163, 166–72, 175, 180, 185, 186, 285 legal consequences of, 190–91 media’s role in, 129, 134, 135, 136, 160, 163, 286 reform of, 135–36, 267, 285–86 regulatory capture in, 47–48, 248, 249–50, 253, 264 societal factors in, 64 unfairness in, x, xi, xii, xviii–xx, 31–32, 39, 41, 83, 101, 114–15, 118, 119, 120–21, 127, 129, 131–33, 134, 135, 136–37, 138, 144, 146, 191, 196, 200, 202, 267, 285, 286, 319, 324, 325, 338, 348, 350, 351 voting in, 119–21, 129–31, 133, 134, 135, 137, 286, 288, 325, 345, 349, 350, 351, 355 see also democracy, U.S.; government, U.S.

A Generation of Sociopaths: How the Baby Boomers Betrayed America
by Bruce Cannon Gibney
Published 7 Mar 2017

The Ant, the Grasshopper, and the Boomer What’s going on here? Private savings have been in decline since the Boomers entered their prime working years. Because very little cohort data exists, economists debate exactly why the savings rate has declined—questioning whether the wealth effect of stock market bubbles discouraged the rich from saving in the 1990s, the natural tendency of a modestly aging population to dissave, and so on. But during the period of steep savings decline, the Boomers had major influence on the savings rate and should have been aggressive savers, yet the inexorable direction was down, until the crash of 2008 forced people to save more.

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Taken together with the complexity of the operations of the biggest, most critical banks, that means the system remains to this day at the mercy of sociopathic subjectivity. It did not help that the Boomers’ psychologically formative years came during a time of great prosperity and that their professional lives were characterized by a long and dubious stock market bubble, allowing critical faculties to wither. Boomer optimism allowed for variables in risk models and accounting statements to be adjusted to their most appealing settings, a parallel to the collective Boomer delusion that the stock and housing markets “only go up.” Equally unhelpful was the collision of attractive economic theories with an ugly sociological reality.

Manias, Panics and Crashes: A History of Financial Crises, Sixth Edition
by Kindleberger, Charles P. and Robert Z., Aliber
Published 9 Aug 2011

It was as if the cash from the sale of securities to foreigners was the proverbial ‘hot potato’ that was rapidly passed from one group of investors to others at ever-increasing prices. Manias and credit and books The production of books on financial crises is counter-cyclical. A spate of books on the topic appeared in the 1930s following the US stock market bubble in the late 1920s and the subsequent crash and the Great Depression. Relatively few books on crises appeared during the several decades immediately after World War II. The first edition of this book was published in 1978, after US stock prices had declined by 50 percent in 1973 and 1974 following a fifteen-year bull market in stocks.

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Clarence Hatry wanted to expand into the steel business, but was caught using fraudulent collateral in an attempt to borrow £8 million to buy United Steel; his failure led to tightening of the British money market, withdrawal of call loans from the New York market, and a topping out of the stock market. Bubbles and swindles Some bubbles are swindles, some are not. The Mississippi Bubble was not a swindle; the South Sea Bubble was. A bubble generally starts with an apparently legitimate or at least legal purpose. What became the Mississippi Bubble initially started as the Compagnie d’Occident, to which the Law system added the farming-out of national tax collections.

The World's Banker: A Story of Failed States, Financial Crises, and the Wealth and Poverty of Nations
by Sebastian Mallaby
Published 24 Apr 2006

For one thing, the report commissioned by Preston exaggerated the Bank’s decline: it was a decline relative to expectations, which had risen sharply as project managers had been required to write more and more goals into their projects—environmental goals, gender-equality goals, and so on. For another, the sense that private firms were brilliantly managed was overblown: The stock market bubble that was inflating at the time created a parallel bubble in executive reputations. But in the mid-1990s, the superiority of the private sector was widely taken for granted. Newt Gingrich was citing the management theorists Peter Drucker and Alvin Toffler; Britain’s prime minister John Major was admitting that his government had spent some $500 million on management consultants; and even Princess Diana of Britain was consulting a business-motivation guru.3 Meanwhile Vice President Al Gore was busy “reinventing government,” and complaining that Americans endured “quill-pen government in the age of Word Perfect”;4 and William Bratton, who ran the New York Police Department from 1994 to 1996, was devolving power to precinct commanders and referring to New Yorkers as “clients.”

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Wolfensohn formed an exaggerated view of the challenge partly because the demon inside him was blind to the accomplishments of those who came before, and partly because in the mid-to-late 1990s all public-sector institutions suffered from comparison with supposed private-sector excellence. To an extent that is clear perhaps only in hindsight, the stock market bubble of the times created a reputational bubble for corporate America as well, and Wolfensohn fell prey to it. He was right to look to the private sector for management ideas, but wrong to suppose that he could ever match the inflated managerial reputations of hot private-sector CEOs, many of whom were turfed out in disgrace when the bubble burst a few years later.

Alpha Trader
by Brent Donnelly
Published 11 May 2021

Our studies show that people who are immune to commonly-known behavioral biases perform the best in experimental asset markets. This is the conclusion of many studies. RQ is more important than IQ30. You are either part of the unbiased, efficient markets or you are creating exploitable inefficiency with your biased, irrational actions. Research Paper 2 “Mental Capabilities, Trading Styles, and Asset Market Bubbles: Theory and Experiment” (2016) ANDREAS HEFTI, STEVE HEINKE AND FRÉDÉRIC SCHNEIDER These researchers first did a series of experiments to evaluate participants on two dimensions, analyzing and mentalizing31. Then, they ran a typical asset market / trading experiment to see how different individuals would behave and perform.

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These moves are another sign of excess (especially relative to the HTZ and CHK bonds, which are priced around 35 cents and 6 cents, respectively). Here’s the thing about bubbles Ok, sure, it’s a bubble. Even if you agree with me, what do you do? First of all, let me clarify that I believe this is a retail bubble in a specific group of stories, not a broad market bubble. If you are a professional asset manager, you should know what stocks are being bid up by retail right now and think about your dream exit levels. Here’s the thing about bubbles. Just because you have identified one, that does not mean you should be short. Often the real money is made by identifying a bubble and jumping on for the bullish Wave 5 insanity.

Making Ideas Happen: Overcoming the Obstacles Between Vision and Reality
by Scott Belsky
Published 31 Mar 2010

Avoid the Trap of Visionary’s Narcissism During my time at Goldman Sachs, I had the opportunity to be a fly on the wall in a lot of meetings in the executive office during both the dot-com bubble and the dire period that followed it. I always found it interesting how every challenge was presented as an unusual one-off: “Never before have we had a market bubble, followed by such volatility in interest rates, interspersed with terrorist concerns.” The business leaders would nod their heads in affirmation. “This is an extraordinary time,” someone else would say. Based on all the times I have heard “This is the most unusual X, the greatest period of Y, the new era of Z,” you might think that had I not been born in the last thirty years I might have missed the most exciting years of business since the beginning of time!

House of Debt: How They (And You) Caused the Great Recession, and How We Can Prevent It From Happening Again
by Atif Mian and Amir Sufi
Published 11 May 2014

Robert Shiller, “Do Stock Prices Move Too Much to Be Justified by Subsequent Changes in Dividends?” American Economic Review 71 (1981): 421–36. 5. Jeffrey Pontiff, “Excess Volatility and Closed-End Funds,” American Economic Review 87 (1997): 155–69. 6. David Porter and Vernon Smith, “Stock Market Bubbles in the Laboratory,” Journal of Behavioral Finance 4 (2003): 7–20. 7. See the following studies for models describing this logic: Michael Harrison and David Kreps, “Speculative Investor Behavior in a Stock Market with Heterogeneous Expectations,” Quarterly Journal of Economics 92 (1978): 323–36; Jose Scheinkman and Wei Xiong, “Overconfidence and Speculative Bubbles,” Journal of Political Economy 111 (2003): 1183–219; and Dilip Abreu and Markus Brunnermeier, “Bubbles and Crashes,” Econometrica 71 (2003): 173–204. 8.

Data-Ism: The Revolution Transforming Decision Making, Consumer Behavior, and Almost Everything Else
by Steve Lohr
Published 10 Mar 2015

Technical innovation is only one piece of a puzzle that includes affordability, acceptance in the marketplace, and changes in behavior. Recall that nearly all of the bold predictions made in the late 1990s about the disruptive impact of the Internet across industry really did come true—a decade later, long after the Internet stock-market bubble had burst. All successful technologies raise alarms and involve trade-offs and risks. In ancient times, fire could cook your food and keep you warm, but, out of control, could burn down your hut. Cars pollute the air and cause traffic deaths, but they have also increased personal mobility and freedom, and stimulated the development of regional and national markets for goods.

Retirementology: Rethinking the American Dream in a New Economy
by Gregory Brandon Salsbury
Published 15 Mar 2010

It was the ticket to a better life, it was new cars, college education, vacations, and so on—and it was expected to be the ticket to a better retirement.3 America’s Housing Boom From 1997–2005, overall homeownership grew in all geographic regions and for all age groups, racial groups, and income groups.4 The housing price boom cited in The Economist not only dwarfed all previous housing booms, but also it was larger than the stock market bubble of the late ’90s.5 • Real home prices for the United States as a whole increased 85% between 1997 and the peak of the housing bubble in 2006. Nationally, median home value rose from $78,500 in 1990 to $185,200 in 2006, a 136% increase.6 From 1995 to 2001, home values increased 68% in Boston, 71% in Denver, and a full 100% in San Francisco.7 • As a result of the federal government “streamlining” the regulatory requirements in the mid 1990s for loans, “...federal bank regulators required banks to make bad loans based on nonexistent credit standards.”8 “Under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people...the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.”9 • Cow pastures were converted into $500,000 homes.

Britain's 100 Best Railway Stations
by Simon Jenkins
Published 28 Jul 2017

island platform station layout where a single platform is positioned between two tracks within a railway station, usually accessed by a footbridge. Italianate general term applied to ‘railway style’, echoing the classical architecture of the Regency. Popular to give a sense of dignity to early railway stations. the Mania term commonly applied to the stock market bubble of 1843–7. This fuelled the second railway-building boom and created the often chaotic pattern of lines and stations that survives to this day. modern movement architecture that emerged between the two world wars in vigorous reaction to the revivalism of the Victorian/Edwardian eras. Typically functional, rectilinear and stripped of adornment.

A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan
by Ben Carlson
Published 14 May 2015

Since the 1960s, you've experienced performance in excess of 20 percent per year in stocks, good enough to double your money every three and a half years. Why would you ever invest anywhere else? Take a look at the return comparison between U.S. stocks and those located in the Pacific region (mostly made up of Japanese companies) in the 1970s and 1980s: U.S. Stocks Pacific Stocks 1970–1989 9.5% 20.5% The Japanese property and stock market bubble was so great at the time that the property market in Japan was worth four times the entire U.S. real estate market by 1990, even though Japan is roughly the size of California. The stock market was trading near 100× earnings, when the long-term average for most markets is around 15×. Things got so out of hand in the Japanese bubble that there were more than 20 golf clubs that cost over $1 million to join.7 To call Japan a bubble is almost an understatement.

Trading and Exchanges: Market Microstructure for Practitioners
by Larry Harris
Published 2 Jan 2003

Crashes occur when prices fall very quickly. Crashes often follow bubbles, but they also occur in other circumstances. Crashes sometimes are called market breaks because the price path breaks when prices fall very quickly. They also are called market meltdowns when they overload the order handling capacity of a market. Bubbles and crashes may affect an individual trading instrument or many instruments at once. Those which simultaneously affect many instruments are broad-based events or marketwide events. Very large price changes most commonly affect only an individual instrument. Broad-based bubbles and crashes are quite rare. 28.1.1 Typical Bubble and Crash Dynamics Bubbles start when buyers become overly optimistic about fundamental values.

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Summers. 1989. When financial markets work too well: A cautious case for a securities transactions tax. Journal of Financial Services Research 3(2/3), 261–286. Treynor, Jack L. 1988. Portfolio insurance and market volatility. Financial Analysts Journal 44(6), 71–73. Treynor, Jack. 1998. Bulls, bears, and market bubbles. Financial Analysts Journal 54(2), 69–74. U.S. Securities and Exchange Commission. 1988. The October 1987 Market Break: A Report by the Division of Market Regulation, U.S. Securities and Exchange Commission (U.S. Government Printing Office, Washington DC). Warshawsky, Mark. 1989. The adequacy and consistency of margin requirements: The cash, futures, and options segments of the equity market.

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See currency; foreign exchange money flow, 423 monopolies, 298 Morgan Stanley, 16, 17–18, 19 morning sessions, 92 mortgage-backed securities, 41 mortgage pools, 41 multifactor risk models, 450 multilateral trades, 91 municipal bonds, 54 mutual funds, 472, 491–92 naked positions, 183 narrow spread, 280, 315 NASD. See National Association of Securities Dealers Nasdaq Stock Market bubble, 569–70 demutualization, 35 as hybrid market, 96, 532 institutional stock trade, 19–20 levels of quotation, 105 Microsoft’s listing, 547 and October 1987 crash, 563 options market, 52 OTC Bulletin Board, 107, 108 as quote-driven market, 93 retail stock trade, 14–15 Small Order Execution System, 14–15, 106, 391, 532 stocks, 48, 49 trading hours, 92 and volatility, 511 volume figures, 48 National Association of Securities Dealers (NASD), 11, 64, 164 National Futures Association (NFA), 64, 164, 474 National Quotation Bureau, 107, 108 National Securities Clearing Corporation (NSCC), 28, 35, 36, 37, 522 natural hedgers, 183 NBBO (national best bid and offer), 70 negative externalities, 7 net buyers, 270 net price basis, 144, 281 net sellers, 270 net settlement, 36 network externality, 145, 535–36 new issues, 39 news traders, 194, 196, 228–30, 231, 235, 239, 243 New York Board of Trade (NYBOT), 55 New York Mercantile Exchange (NYMEX) contract volumes, 55 floor-based trading, 543 variation margin example, 42 New York Stock Exchange (NYSE) After-hours Trading Session I, 132, 133 as “Big Board,” 107 block trades, 323 bond market, 54 Exchange Stock Portfolio, 490 floor-based trading, 48, 543, 544 generally accepted accounting principles, 314 history of, 64 as hybrid market, 96, 532 institutional stock trade, 15–19 listed stocks, 48 market-not-held orders, 530 options market, 52 program trades, 489 quantitative listing standards for domestic companies, 46 retail stock trade, 11–14 Rule 80A, 577, 580–81 Rule 80B, 573, 578 specialists, 298, 494, 495, 496, 500, 510 SuperDot order-routing system, 13, 106, 489, 562 trading hours, 92 NFA.

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

Here are a few others: Between 2007 and 2008, more than 800,000 additional American households found themselves trying to make do on under $25,000 a year, bringing the total to nearly 29 million.24 In 2005, households in the bottom 20 percent had an average income of $10,655, while the top 20 percent made $159,583—a disparity of 1,500 percent, the highest gap ever recorded.25 In 2007, the top 10 percent pocketed almost half of all the money earned in America—the highest percentage recorded since 1917 (including, as Business Insider editor Henry Blodget noted, in 1928, the peak of the stock market bubble in the “roaring 1920s”).26 Between 2000 and 2008, the poverty rate in the suburbs of the largest metro areas in the United States grew by 25 percent—making the suburbs home to the country’s biggest and most rapidly expanding segment of the poor.27 Making matters even worse is the fact that while the classes are moving farther apart—with the middle class in real danger of disappearing entirely—mobility across the classes has declined.

The Handbook of Personal Wealth Management
by Reuvid, Jonathan.
Published 30 Oct 2011

Recent months have seen unprecedented shifts in the economy and in the financial services sector in particular. After a decade or more of growth, came the nasty shock of the most dramatic financial collapse in living memory and nothing will look the same again. Within a few months, both housing and stock market bubbles have burst. In the process the entire global banking system almost came down with them. Those who have worked hard to build wealth and secure their future were left uncertain of where and how to find the right balance of risk and return. The game has changed, but no one is entirely sure of the new rules.

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

To return to the trends they had followed in the 30 years before that, they would have to fall by around one-fifth. But the builders' associations and the banks' magazines explained soothingly that home prices never fall nationally. This did not impress James Grant, who noted that, since the Great Depression, the United States had experienced 29 market bubbles-strong rises in the prices of securities or other assets. Twentyseven of them had burst. The two exceptions were stock and realestate prices in June 2005. Not understanding why bubbles no. 28 and no. 29 should be exceptions, Grant gave his readers some good advice: Does your brother-in-law, the real estate broker, owe you money?

Rebel Cities: From the Right to the City to the Urban Revolution
by David Harvey
Published 3 Apr 2012

It was partly global (with the collapse of the Bretton Woods agreem ents) , but it also origi­ nated within the credit institutions that had powered the property boom in the preceding decades. Th is crisis gathered momentum at the end of the 1 960s, until the whole capital ist system crashed into a m ajor global crisis, led by the bursting of the global property market bubble in 19 73, followed by the fiscal bankruptcy of New York City in 1 975. Th e d ark days of the 1 9 70s had arrive d, and the question then was how to rescue capitalism from its own contradictions. In this, if h istory was to b e any guide, the urban process was bound to play a significant role.

Does Capitalism Have a Future?
by Immanuel Wallerstein , Randall Collins , Michael Mann , Georgi Derluguian , Craig Calhoun , Stephen Hoye and Audible Studios
Published 15 Nov 2013

Individual countries returned after the war to the gold standard in an ad hoc way, mostly at unrealistic levels driven by ideologies of national pride and honor more than by pragmatic economic analysis. Also contributing were geopolitical tensions between Germany and Austria, on the one hand, and France and Britain on the other. France and America hoarded gold. There was ideological attachment by old regimes to laissez-faire economics, a stock market bubble, and an uncompleted transition from old to new forms of manufacturing, all of which lowered the employment potential of the economy. In America, the eye of the storm, grave policy mistakes were also made by Congress and by the Federal Reserve Board rooted in the market fundamentalism of this period which reached its ghastly climax in what was called “liquidationism”–the pursuit of austerity measures in order to destroy inefficient firms, industries, investors, and workers.

Broken Markets: A User's Guide to the Post-Finance Economy
by Kevin Mellyn
Published 18 Jun 2012

In fact, they became more frequent. However, the US Federal Reserve and Treasury were always quick to flood the market with money and slash interest rates in order to limit the damage to the financial 17 18 Chapter 1 | The Rise and Fall of the Finance-Driven Economy economy. Except for the collapse of the dot-com stock market bubble, largescale destruction of financialized wealth was a thing of the past. Another problem, of course, is that markets are reflections of human nature, balanced on a knife’s edge between fear and greed. To remove fear is to open the floodgates of greed. The problem with greed, whatever the Occupy Wall Street gang might think, is not that it is bad.

The Global Auction: The Broken Promises of Education, Jobs, and Incomes
by Phillip Brown , Hugh Lauder and David Ashton
Published 3 Nov 2010

Based on market income, including wages, bonuses, dividends, and pensions, Berkeley economist Emmanuel Saez calculated the changing fortunes of America’s top earners since 1917. He shows that the top 10 percent received almost half (49.7%) of national individual income in 2006, surpassing 1928, the peak of the stock market bubble in the Roaring ’20s.8 If the top 10 percent have done well over the last 25 years, it is those at the very top who struck gold. Saez’s evidence shows that the top 1 percent captured about half of the overall economic growth in America over the period 1993 to 2006. These were the working rich, including the CEOs of major corporations.

Investing Demystified: How to Invest Without Speculation and Sleepless Nights
by Lars Kroijer
Published 5 Sep 2013

The banks do this both in the form of residential property markets, but also by financing and investing in commercial property. Even in the cases where the banks only act as a facilitator and pass on the principal risks to other investors (as opposed to other cases where banks hold on to a property investment), they still have a huge interest in a positive property market. The bursting of the US sub-prime market bubble in 2007–08 and the subsequent default of many geared products connected to it was one of the primary drivers of the financial crisis. So even if the direct representation of property investment companies represents a fairly small portion of the overall stock market, we have indirect exposure to property through many other sectors of the stock markets.

Planet of Slums
by Mike Davis
Published 1 Mar 2006

It proposed raising the official figure from 14.7 million to at least 37.1 million, although it acknowledged that this revision still failed to include tens of millions of laid-off employees or the 100 million "floating workers" still counted as farmers.68 Urban poverty in India is more honestly acknowledged and publicly debated than in China, but local social scientists and social-justice activists trying to focus public attention on the underside of the recent economic growth have also had to swim against the current of celebratory official rhetoric As any reader of the business press knows, the drastic neoliberal restructuring of the Indian economy after 1991 produced a high-tech boom and stock-market bubble whose frenzied epicenters were a handful of Cinderella cities: Bangalore, Pune, Hyderabad, and Chennai. GDP grew at 6 percent during the 1990s, while the capitalization of the Bombay Stock Exchange doubled almost every year — and one result was one million new millionaires, many of them Indian engineers and computer scientists returned from Sunnyvale 67 Yatsko, New Shanghai, pp. 120-21. 68 People's Daily (English version), 30 October 2002; Athar Hussain, "Urban Poverty in China: Measurement, Patterns and Policies," ILO working paper, Geneva 2003. 

Wall Street Meat
by Andy Kessler
Published 17 Mar 2003

I have a bad feeling that Spitzer’s “settlement” will merely perpetuate the old way of doing business much longer than its natural life. The structural changes and return of tough filters will take longer and be more painful to fulfill. Is there some message to all this? Some note to future generations about how to avoid stock market bubbles, how to keep research honest, how to tame the cycles? Nah. They will learn 230 Spitzer Fixer it the hard way. Wall Street is a business. Analysts and salesmen and traders and bankers all make a living providing access to capital to businesses worldwide. For that task, the Street, as a group, gets to keep half of all the revenues they generate.

Social Democratic America
by Lane Kenworthy
Published 3 Jan 2014

The next time our unemployment rate gets near 4 percent, the Federal Reserve is more likely to slam on the brakes by raising interest rates. In the late 1990s, Fed chair Alan Greenspan held interest rates low despite opposition from other Fed board members who worried about potential inflationary consequences of rapid growth, rising wages, and the Internet stock market bubble. Greenspan’s belief in the self-correcting nature of markets led him to worry less than others. Given the painful consequences of the 2000s housing bubble, the Fed is highly unlikely to repeat that approach. So for Americans in middle- and lower-paying jobs, prospects for rising wages going forward are slim.

Infotopia: How Many Minds Produce Knowledge
by Cass R. Sunstein
Published 23 Aug 2006

When everyone is looking to someone else for an opinion—trying, for example, to pick the Democratic candidate they think everyone else will pick—it’s possible that whatever information other people might have gets lost, and instead we get a cascade of imitation that, like a stampeding herd, can start for no apparent reason and subsequently go in any direction with equal likelihood. Stock market bubbles and cultural fads are the examples that most people associate with cascades . . . but the same dynamics can show up even in the serious business of Democratic primaries. . . . We think of ourselves as autonomous individuals, each driven by [our] own internal abilities and desires and therefore solely responsible for our own behavior, particularly when it comes to voting.

Hubris: Why Economists Failed to Predict the Crisis and How to Avoid the Next One
by Meghnad Desai
Published 15 Feb 2015

But economics is not an exact science so I could not give the diplomat a precise date for when the boom would end; just the certainty that a turning point would come and it would be sooner than he thought. By mid-2007, two events had taken place, in quick succession, which indicated that the global economy was changing direction. The first occurred in the autumn of 2006 when the US housing market bubble burst; this was followed by the collapse on the Shanghai stock market in February 2007. These events were, at the time, viewed as isolated incidents, unconnected to the larger web of the global economy. During the Great Moderation, words like capitalism and business cycles were no longer a part of the vocabulary of modern economics used by self-respecting economics departments.

The Behavioral Investor
by Daniel Crosby
Published 15 Feb 2018

They are play money and will not generate hard cash.’ ” One generation after the kuxe bubble, the Dutch Golden Age gave rise to the Tulip Bubble, where a single bulb traded for as much as a townhome. But living through a bubble seems to do very little to inoculate the coming generation against similar folly. The International Monetary Fund reports that bubbles are now regarded as a “recurrent feature of modern economic history” and cites 23 instances of stock market bubbles in just the US and UK between 1800 and 1940. Bubbles have been and always will be with us and the investor that ignores these dramatic dislocations from fundamental value does so at her own peril. It makes sense that bubbles occur in financial markets fraught with uncertainty, but Vernon Smith and his co-authors actually found that bubbles seem to occur naturally, even in markets with well-defined prices and a finite time horizon.

Reinventing Capitalism in the Age of Big Data
by Viktor Mayer-Schönberger and Thomas Ramge
Published 27 Feb 2018

A similar approach could improve food safety by using feedback data collected from farms and supermarkets. Feedback data from online learning platforms could help improve decision-making in the public-education sector, and decision-assistance data used for transaction matching could be reused in an early warning system that better predicts market bubbles. Together with the data-sharing mandate we propose, this would make data available to small firms, especially start-ups, so that they can compete against the big players. It may also be a good way to jump-start innovation. The data could also be used by government to improve its services. And it might be offered to nonprofits, researchers, and society at large so that everyone can benefit from the profits of superstar firms.

How to Predict the Unpredictable
by William Poundstone

He used earnings reports to reconstruct the ten-year PE back to January 1881. Here’s a chart of it. It is hard to explain the huge variations as reasonable changes in the outlook for future earnings. Look at the rises to the big peaks in 1929 and 2000, and the equally insistent drops afterward. These were famous stock market bubbles driven by hot hand beliefs. Shiller found that his backward-looking ten-year PEs have considerable power in predicting future returns. This is demonstrated in the chart below. Every dot represents a month, from January 1881 through January 1993. The dot’s position is determined by that month’s ten-year PE value (on the horizontal axis) and the return that an investor would have achieved had he invested a lump sum in the S&P 500 stocks that month and held that investment for twenty years (this return on the vertical axis).

Rebel Ideas: The Power of Diverse Thinking
by Matthew Syed
Published 9 Sep 2019

This is another example of an information cascade, and much of its force is explained by interpretation. When two or more people lean towards the same answer, it is easy to assume they arrived at it independently. This amplifies its persuasive power, causing others to lean towards it, too. This is where fads, stock-market bubbles and other bandwagon effects come from. Crowds are not always wise. They can become dangerously clone-like. These cascades can happen at a purely social level, too. Studies by the psychologist Solomon Asch have shown that people often lean towards the answers of others, not because they believe them to be correct, but because they don’t want to appear rude or disruptive by disagreeing.

Fed Up!: Success, Excess and Crisis Through the Eyes of a Hedge Fund Macro Trader
by Colin Lancaster
Published 3 May 2021

Success, Excess and Crisis Through the Eyes of a Hedge Fund Macro Trader Colin Lancaster Contents Part 1: The Late Stages of a Bubble Chapter 1 Sushi, Sake and a Breakdown in the repo markets October 2019 Chapter 2 Viva Las Vegas November 2019 Chapter 3 The Star Tavern and Life in Knightsbridge December 2019 Part 2: The Crash Chapter 4 The Virus Spreads January 2020 Chapter 5 Risk Management and an Inflection Point February 2020 Chapter 6 Market Crash March 2020 Part 3: The Aftermath Chapter 7 QE Dreaming April 2020 Chapter 8 Economic Data Worse than the Great Depression May 2020 Chapter 9 Lessons from the Gilded Age; Back to Market Highs June 2020 About the author Acknowledgments Publishing Details For Tia, Victoria, Sophia, and Maria “We have always found, where a government has mortgaged all its revenues, that it necessarily sinks into a state of languor, inactivity, and impotence.” David Hume This book tells the story of a global macro trader working amidst the greatest market panic that we’ve seen since the Great Depression. As the COVID-19 pandemic spreads across the world, readers are taken through the late-stage decadence of an exuberant market bubble to the depths of the market crash and into the early innings of a recovery. It provides readers with a front row seat on trading activity, allowing them a view of the market’s heartbeat. It’s also about money and opportunity. It’s about the moral dilemma of a man who is struggling as he reaches his own peak.

The Finance Book: Understand the Numbers Even if You're Not a Finance Professional
by Stuart Warner and Si Hussain
Published 20 Apr 2017

In practice For a publicly listed company, maintaining a high share price is challenging, due to extrinsic factors largely beyond the control of directors, such as: competitors’ actions or reactions; analysts’ opinions; media stories and bid rumours; speculative behaviour; market sentiment, the economy and stock market bubbles. For a private business, valuation is more of an art than a science because value is a matter of opinion. It is sometimes said that ‘the value of a business is what it can be argued to be’. Therefore, the best approach to valuation is to: Use a variety of valuation techniques and see if they are relatively close.

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

But the upheaval was far from over, and the market remained in a nervous mood, partly due to uncertainty over the outcome of the United States and British invasion of Afghanistan a few weeks after 9/11. Then, in November, an energy trading company called Enron stuck a pin in the remains of the late 1990s stock-market bubble, which had shrunk but not burst. As the Justice Department moved in, Enron melted into bankruptcy in the heat of an accounting fraud. Enron was an extreme but not isolated situation. The excesses of the stock-market bubble and the opportunity for executives to pillage their companies led to a whole series of accounting-fraud and securities-violation cases: WorldCom, Adelphia Communications, Tyco, ImClone.

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In another sense, the temporary boost of fame he had gotten from the Sun was a sidebar compared to something else. Buffett had recently exploded in investors’ minds for a different reason. Under the pen name Adam Smith, a writer named George Goodman had published Supermoney, a fire-and-brimstone critique of the 1960s stock-market bubble, which sold more than a million copies.53 It demonized the fund managers who had ascended to the stratosphere almost overnight and then crashed, in a parabola as dramatic as if their engines had suddenly run out of rocket fuel. They were featured as devil-horned, pitchfork-bearing tempters of the ordinary Joe Investor.

…

Those who bought an index of the market had just suffered through what the Wall Street Journal called a “lost decade” in which the S&P 500 index had gone exactly nowhere, falling below its level of April 1999.2 Buffett’s talk at Sun Valley was unfolding along the lines he had discussed; the period after the 1999 stock market bubble had burst was now the third-longest stretch in the past hundred years when the market made no progress. Buffett still said that stocks are the best long-time investment—as long as they were bought at the right price, and for a low fee. As of early 2008, he was buying stocks, but not with great enthusiasm.

The Signal and the Noise: Why So Many Predictions Fail-But Some Don't
by Nate Silver
Published 31 Aug 2012

Examples like the discrepancy in pricing between Palm and 3Com stock simply could not have arisen if the price were right. You had the same commodity (the value of an interest in Palm) trading at two different and wildly divergent prices: at least one of them must have been wrong. There are asymmetries in the market: bubbles are easier to detect than to burst. What this means is that the ultimatum we face in Bayesland—if you really think the market is going to crash, why aren’t you willing to bet on it?—does not necessarily hold in the real world, where there are constraints on trading and on capital. Noise in Financial Markets There is a kind of symbiosis between the irrational traders and the skilled ones—just as, in a poker game, good players need some fish at the table to make the game profitable to play in.

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Google “Insights for Search” beta; “housing bubble” (United States). http://www.google.com/insights/search/#q=housing+bubble&cmpt=q&geo=US. 20. Newslibrary.com search; United States sources only. 21. The volume of discussion in the news media forms a parallel to that of the stock market bubble in the late 1990s, references to which increased tenfold in news accounts between 1994 and 1999, peaking just the year before markets crashed. 22. Janet Morrissey, “A Corporate Sleuth Tries the Credit Rating Field,” New York Times, February 26, 2011. http://www.nytimes.com/2011/02/27/business/27kroll.html?

Automate This: How Algorithms Came to Rule Our World
by Christopher Steiner
Published 29 Aug 2012

Nevertheless, Wall Street embraced Li’s formula as stone-solid fact. The copula should have been one arrow in the quiver of analysts and rating agencies who examined and stamped their approval on mortgage-backed securities. Instead, it became the only arrow. The resultant boom in collateralized debt obligations and the housing market bubble came straight from bankers’ misuse of what should have been a harmless algorithm. Gaussian copulas are useful tools and are utilized in a number of fields, but the one thing they do not do is model dependence between extreme events, something humans excel at precipitating.33 PASCAL, BERNOULLI, AND THE DICE GAME THAT CHANGED THE WORLD Much of modern finance, from annuities to insurance to algorithmic trading, has roots in probability theory—as do myriad other businesses from casinos to skyscraper construction to airplane manufacturing.

The Happiness Industry: How the Government and Big Business Sold Us Well-Being
by William Davies
Published 11 May 2015

See ‘Did Cocaine Use by Bankers Cause the Global Financial Crisis’, theguardian.com, 15 April 2013. 33Michelle Smith, ‘Joe Huber: Blame Your Lousy Portfolio on Your Brain’, moneynews.com, 17 June 2014. 34Alec Smith, Terry Lohrenz, Justin King, P. Read Montague and Colin Camerer, ‘Irrational Exuberance and Neural Crash Warning Signals During Endogenous Experimental Market Bubbles’, Proceedings of the National Academy of the Sciences 111: 29, 2014. 3 In the Mood to Buy 1Ruth Benschop, ‘What Is a Tachistoscope? Historical Explorations of an Instrument’, Science in Context 11: 1, 1998. 2Jonathan Haidt, The Righteous Mind: Why Good People Are Divided by Politics and Religion, New York: Pantheon Books, 2012. 3See Maren Martell, ‘The Race to Find the Brain’s “Buy-Me Button”’, welt.de, 20 January 2011, transl. worldcrunch.com, 2 July 2011. 4Robert Gehl, ‘A History of Like’, thenewinquiry.com, 27 March 2013. 5Lea Dunn and JoAndrea Hoegg, ‘The Impact of Fear on Emotional Brand Attachment’, Journal of Consumer Research 41: 1, 2014. 6Jeffrey Zaslow, ‘Happiness Inc.’, online.wsj.com, 18 March 2006. 7Keith Coulter, Pilsik Choi and Kent Monroe, ‘Comma N’ Cents in Pricing: The Effects of Auditory Representation Encoding on Price Magnitude Perceptions’, Journal of Consumer Psychology 22: 3, 2012. 8Drazen Prelec and George Loewenstein, ‘The Red and the Black: Mental Accounting of Savings and Debt’, Marketing Science 17: 1, 1998. 9Jonathan Crary, Suspensions of Perception: Attention, Spectacle, and Modern Culture, Cambridge, Mass.: MIT Press, 2001. 10Robert Rieber and David Robinson, eds., Wilhelm Wundt in History: The Making of a Scientific Psychology, Dordrecht: Kluwer Academic Publishers, 2001. 11See James Beniger, The Control Revolution: Technological and Economic Origins of the Information Society, Cambridge, MA: Harvard University Press, 1988. 12Robert Rieber, ed., Wilhelm Wundt and the Making of a Scientific Psychology, New York: Plenum Publishing Company Limited, 1980. 13Ibid. 14The American psychologist Edward Thorndike wrote in 1907: ‘Psychology supplies or should supply the fundamental principles upon which sociology, history, anthropology, linguistics and the other sciences dealing with human thought and action should be based … The facts and laws of psychology … should provide the general basis for the interpretation and explanation of the great events studied by history.’

The Cost of Inequality: Why Economic Equality Is Essential for Recovery
by Stewart Lansley
Published 19 Jan 2012

The losses incurred by British and European banks, for example, arose initially largely from reckless investment in securities backed by US subprime mortgages. Despite the bubbles that were building across a number of markets, the regulatory authorities took no action. Yet there had been plenty of earlier examples of their destructive power. In the 1920s, it was the property followed by the stock market bubble that led to the 1929 Crash. In the early 1970s, Heath’s freeing up of the banks had provided a classic warning sign of the impact on property markets as house prices surged out of control. The bursting of the Japanese property bubble in 1989—which sent the nation into a decade-long spiral of deflation—was another.

Mythology of Work: How Capitalism Persists Despite Itself
by Peter Fleming
Published 14 Jun 2015

Financialization and shareholder capitalism perhaps represents the apogee of rationalized capitalism. Here, the numerical monetary logic of pure accumulation truly creates an inversion of ends and means that is shocking. Whatever it takes to increase shareholder value – firing staff, plundering the natural environment, creating extremely volatile property-market bubbles – must be pursued in a single-minded fashion, even if it harms the organization in question. Like all forms of hyper-rationalization, shareholder capitalism fosters a mentality that is generally antisocial and sometimes diabolical when observed from an outside perspective. For example, a large funeral home corporation in the United Kingdom recently had to break some bad news to its shareholders.

Frequently Asked Questions in Quantitative Finance
by Paul Wilmott
Published 3 Jan 2007

The validity of the EMH, whichever form, is of great importance because it determines whether anyone can outperform the market, or whether successful investing is all about luck. EMH does not require investors to behave rationally, only that in response to news or data there will be a sufficiently large random reaction that an excess profit cannot be made. Market bubbles, for example, do not invalidate EMH provided they cannot be exploited. There have been many studies of the EMH, and the validity of its different forms. Many early studies concluded in favour of the weak form. Bond markets and large-capitalization stocks are thought to be highly efficient, smaller stocks less so.

The Trouble With Billionaires
by Linda McQuaig
Published 1 May 2013

As John Kenneth Galbraith observed: ‘[T]he rich were getting richer much faster than the ‌poor were getting less poor.’15 With the buying power of workers severely constrained, wealthy Americans happily turned their capital over to Wall Street for lucrative financial speculation. In 1926, Republican Treasury Secretary Andrew Mellon, the fifth richest man in the US, introduced an enormous tax cut for the rich. This provided the elite with a massive windfall that quickly flowed to Wall Street, inflating the stock market bubble. When that bubble burst in an orgy of unregulated financial speculation three years later, the resulting crash plunged the American economy into a deep depression with unemployment levels rivalling those in 1930s Britain. But, as in Britain, the harsh experience of the 1930s in America prompted a demand for significant changes that led to greater equality.

Listen, Liberal: Or, What Ever Happened to the Party of the People?
by Thomas Frank
Published 15 Mar 2016

They were “too big to fail” by then.32 Let us continue down the list of Democratic achievements of the 1990s. Telecom deregulation turned out to encourage monopoly building, not innovation; its main effects were the extinction of locally controlled radio stations and the bidding up of telecom shares in the great stock market bubble that burst during Clinton’s last year in office. Electricity deregulation, as it was implemented by the states, allowed Enron to engineer the California power shortage. The rage for stock options fed the epidemic of corporate fraud that came to light soon after Clinton left office, while the capital-gains tax cut was rocket fuel for inequality—“one of the most regressive tax cuts in America’s history,” according to Stiglitz’s recollections of his service in the Clinton administration.

More Than You Know: Finding Financial Wisdom in Unconventional Places (Updated and Expanded)
by Michael J. Mauboussin
Published 1 Jan 2006

See also psychology of investing investment process investment profession investors: average holding period diversity of evolution of understanding of power laws Iowa Electronic Markets (IEM) janitor’s dream jellybean-jar experiment Johnson, Norman judgment Kahneman, Daniel; decision-making model Kaplan, Sarah Karceski, Jason Kasparov, Garry Kaufman, Peter Keynes, John Maynard Knight, Frank Krugman, Paul kurtosis lack of representation Lakonishok, Joseph Laplace, Pierre Simon Laplace’s demon leader/challenger dynamics LeDoux, Joseph Legg Mason Value Trust Leinweber, David Lev, Baruch Lewis, Michael life cycle: clockspeed of companies of fruit flies of industries liking limited-time offers linear models lions liquidity lollapalooza effects long term, management for strategies for winners strategy as simple rules Long Term Capital Management long-term investment, loss aversion and Lorie, James loss, risk and loss aversion equity-risk premium exhibits myopic portfolio turnover ratio of risk to reward utility lottery players Lowenstein, Roger luck MacGregor, Donald G. MacKay, Charles Malkiel, Burton Mandelbrot, Benoit B. market capitalization markets: bubbles and crashes collective decisions and decision effect of psychology on efficiency of innovation considered by interpreting new entrants and competitive strategy parallels with insect colonies market timing Mastering the Dynamics of Innovation (Utterback) mathematical expression, symbols for maze problem McKinsey Quarterly mean, reversion to mental-models approach Milgram, Stanley Miller, Bill Moneyball (Lewis) money managers scouting report and stresses on Moore, Geoffrey Moore’s Law Morningstar multidisciplinary perspective.

The Bogleheads' Guide to Investing
by Taylor Larimore , Michael Leboeuf and Mel Lindauer
Published 1 Jan 2006

On October 12, at the market bottom, the Elves were bearish, when they should have been bullish, and remained bearish through November 1994 as a powerful advance began. It became so embarrassing that Rukeyser actually replaced five bearish Elves with five more bullish Elves. Unfortunately, the newly organized Elves were bullish all through the bear market plunge (21 percent) in July and August of 1998. A year later, as the stock market bubble was approaching its climax at the end of 1999, only one Elf, Gail Dudack, was correctly bearish. Rukeyser must have gotten tired of her bearishness and announced Dudack's dismissal on a November show. He replaced her with Alan Bond, another stock market bull (sentenced in 2003 to 12 years and 7 months in prison for defrauding investors).

Throwing Rocks at the Google Bus: How Growth Became the Enemy of Prosperity
by Douglas Rushkoff
Published 1 Mar 2016

That’s likely where we are today, with the absurd valuation of every remotely plausible new platform monopoly, as well as the joblessness and upset that the successful ones generate: cabdrivers protesting Uber, hotel workers complaining about Airbnb, and San Francisco residents throwing rocks at Google buses over inflated rent prices. Then the stock market bubble pops. Perez sees that as the turning point, when wealth disparity between the winners and losers reaches an extreme, civil unrest reaches a peak, and government is forced to act through regulation. For instance, the irruption and frenzy phases of automobiles and mass-produced appliances led to the Roaring Twenties and eventually the 1929 crash.

Foolproof: Why Safety Can Be Dangerous and How Danger Makes Us Safe
by Greg Ip
Published 12 Oct 2015

Low inflation reduces the payment and enables the buyer to afford a much larger mortgage and thus a pricier house. While it was true that high inflation was corrosive to financial stability, so, perversely, was low inflation: inflation was low and economic growth stable in the 1920s in America, and in 1980s-era Japan. In both cases, the result was a stock market bubble. Greenspan himself pointed this out in the aftermath of the dot-com bubble in 2002. As inflation had become tame, recessions had become less frequent, so investors and home buyers were willing to pay higher prices for assets, which exposed them to big losses if anything went wrong. “It seems ironic,” he said, “that a monetary policy that is successful in inducing stability may inadvertently be sowing the seeds of instability associated with asset bubbles.”

The Enigma of Capital: And the Crises of Capitalism
by David Harvey
Published 1 Jan 2010

This crisis gathered momentum at the end of the 1960s. The solution was becoming the problem. The Bretton Woods Agreement of 1944 came under stress. The US dollar was under mounting international pressure because of excessive borrowing. Then the whole capitalist system fell into a deep recession, led by the bursting of the global property market bubble in 1973. The dark days of the 1970s were upon us with all the consequences earlier outlined. Fitting, though, that it was the New York City fiscal crisis of 1975 that centred the storm. With one of the largest public budgets at that time in the capitalist world, New York City, surrounded by sprawling affluent suburbs, went broke.

Running Money
by Andy Kessler
Published 4 Jun 2007

Their economies achieve full employment, sure, but these countries are not economic powerhouses. Not anymore. We were investing in companies with no more than 50–100 workers, most of them highly paid programmers and engineers, whose occupational hazard is coming down off a caffeine buzz and an occasional late night Nerf gun injury. Yet even after the market bubble burst in 2000, these companies would still be worth more than Ssangyong, a company a hundred or a thousand times their size. The stock market values small businesses with high margins over big businesses with low margins. Is that good or bad? Should I even care? Whenever I try to figure out why this is, I keep thinking back and visualizing Mr.

Leading From the Emerging Future: From Ego-System to Eco-System Economies
by Otto Scharmer and Katrin Kaufer
Published 14 Apr 2013

The great positive accomplishments of the laissez-faire free-market 2.0 economy and society are rapid growth and dynamism; the downside is that it has no means of dealing with the negative externalities that it produces. Examples include poor working conditions, prices of farm products that fall below the threshold of sustainability, and highly volatile currency exchange rates and stock market bubbles that destroy precious production capital.9 SOCIETY 3.0: ORGANIZING AROUND INTEREST GROUPS Measures to correct the problems of Society 2.0 include the introduction of labor rights, social security legislation, environmental protection, protectionist measures for farmers, and federal reserve banks that protect the national currency, all of which are designed to do the same thing: limit the unfettered market mechanism in areas where the negative externalities are dysfunctional and unacceptable.

Rethinking the Economics of Land and Housing
by Josh Ryan-Collins , Toby Lloyd and Laurie Macfarlane
Published 28 Feb 2017

Households reduce their spending and increase their savings, this reduces firms’ profits, leading them to pull back from investment and pay off their debts, and banks contract their lending and rebuild their capital base. A range of studies show that such balance sheet recessions tend to last longer and be deeper than crises that do not involve credit bubbles (e.g. stock market bubbles); and within the universe of recessions caused by credit bubbles, land-related credit bubbles are consistently deeper and last longer (Buyukkarabacak and Valev, 2006; Schularick and Taylor, 2009; Borio et al., 2011; Bezemer and Zhang, 2014; Jordà et al., 2015). The clearest example of the long-term damage a land price credit bubble can do to an economy is Japan.

Zeitgeist
by Bruce Sterling
Published 1 Nov 2000

“No; actually, you are insane, Viktor. Not that I hold that against you.” “No, Starlitz, you’re insane; you’ve lost all sense of proper proportion. Y2K is coming, and you’re at the end of your rope. You’ve lost all sense of restraint and decency. You’re going to pop and disappear, just like a stock-market bubble.” “Viktor, don’t tell me I’m insane, okay? I’ve got a child and a nice reputation in the industry. But you—you wouldn’t know an honest job if it carpet-bombed you. You’re a young guy, and you’re like a hundred-and-ten-percent shakedown problems.” “All right,” sniffed Viktor, “that does it! I knew that eventually you’d insult me unforgivably.

The Revolution That Wasn't: GameStop, Reddit, and the Fleecing of Small Investors
by Spencer Jakab
Published 1 Feb 2022

An influential, already-wealthy person who can point us in the direction of a shortcut will capture a lot of attention and get us to ignore what are, with the benefit of hindsight, obvious red flags. By suggesting that there were oodles of millionaires in America—which, even at the peak of the epic twenties stock market bubble, there weren’t—the opening paragraph of the interview gave readers the sense that they were late to the party. At the time, disposable income per person in the United States was a little over $6,000, and $1 million dollars was the equivalent of more than $15 million in today’s money. In any case, this was the most reckless advice possible given at the worst possible time.

The Age of Turbulence: Adventures in a New World (Hardback) - Common
by Alan Greenspan
Published 14 Jun 2007

I told the committee we might need an interest rate increase to try to rein in the bull. "We have to start thinking about some form of preemptive move," I said, "and how to communicate that." I was choosing my words very carefully because we were on the record and we were playing with political dynamite. The Fed has no explicit mandate under the law to try to contain a stock-market bubble. Indirectly we had the authority to do so, if we believed stock prices were creating inflationary pressures. But in this instance, that would have been a very hard case to make because the economy was performing so well. The Fed does not operate in a vacuum. If we raised rates and gave as a reason that we wanted to rein in the stock market, it would have provoked a political firestorm.

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T H E AGE OF T U R B U L E N C E twelve months (the Dow rose 20 percent). Most people who'd invested in stocks were feeling flush, and with good reason. This presented the Fed with a fascinating puzzle: How do you draw the line between a healthy exciting economic boom and a wanton, speculative stock-market bubble driven by the less savory aspects of human nature? As I pointed out drily to the House Banking Committee, the question is all the more complicated because the two can coexist: "The interpretation that we are currently enjoying productivity acceleration does not ensure that equity prices are not overextended."

The Zenith Angle
by Bruce Sterling
Published 27 Apr 2004

Tony silently reached to pour himself more booze. The happy moment passed quickly. There was an anvil on Tony’s back. “What are you up to, Tony? You got plans to turn it around, right?” “Well,” said Tony, who was definitely not okay, “you mustn’t lose sight of the end goal, Van. After a stock market bubble, people are just as irrational as they were before. But now it’s all about the terror, instead of all about the greed. They are more irrational now, because they can’t see any future.” “You’ve got money troubles?” “It’s not that simple. By the way, I’m really sorry about your board of directors gig for DeFanti’s holding company.

Currency Wars: The Making of the Next Gobal Crisis
by James Rickards
Published 10 Nov 2011

Emergent properties are seen in the recurring price patterns that technicians are so fond of. The peaks and valleys, “double tops,” “head and shoulders” and other technical chart patterns are examples of emergence from the complexity of the overall system. Phase transitions—rapid extreme changes—are present in the form of market bubbles and crashes. Much of the work on capital markets as complex systems is still theoretical. However, there is strong empirical evidence, first reported by Benoît Mandelbrot, that the magnitude and frequency of certain market prices plot out as a power-law degree distribution. Mandelbrot showed that a time series chart of these price moves exhibited what he called a “fractal dimension.”

Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism
by Ha-Joon Chang
Published 26 Dec 2007

The money game is in our genes – after all, paper money is a Chinese invention!’When it joined the organization in 2024, China revalued its currency, the renminbi, by four times and fully opened its capital market. For a while, the Chinese economy boomed as though the sky was the limit. But the resulting real estate and stock market bubbles burst in 2029, requiring the largest IMF rescue package in history. Soaring unemployment and IMF-imposed cuts to government food subsidies led to riots and eventually to the rise of the Yuan-Gongchandang (Real Communist) movement, fuelled by the seething resentment of the ‘losers’ in a society that had moved from the near-absolute equality of Maoist communism to Brazilian-style inequality in the space of less than two generations.

Economists and the Powerful
by Norbert Haring , Norbert H. Ring and Niall Douglas
Published 30 Sep 2012

The most important factor for their remuneration and career prospects is their willingness and ability to tell retail customers a story that entices them to do business with their employer. For analysts who cover stocks that have been underwritten by their employer, their career outcome depends even more on that optimism than on the accuracy of earnings forecasts. In a hot stock market, the reward for optimism is highest. This implies that banks systematically amplify stock market bubbles by having their analysts cheer on the retail investor crowds (Kubik and Hong 2003). The incentives of the analysts and their employers are not a secret to the companies covered by their research: if analysts treat them well, these companies return the favor. The gift exchange between analyzed companies and analysts consists mostly of privileged access to information in exchange for favorable reports.

The Globalization Paradox: Democracy and the Future of the World Economy
by Dani Rodrik
Published 23 Dec 2010

Floating currencies became a source of instability for the international economic system rather than a safety valve. Economists and policy makers would endlessly debate during the eighties and nineties whether currency values reflected fundamental economic conditions or simply distortions in foreign currency markets: bubbles, irrationality, myopic expectations, or short-term trading strategies. What do all these men in their twenties and thirties—they are mostly men—sitting in front of huge computer screens, who move hundreds of millions of dollars across the globe at a keystroke and determine the fate of nations’ currencies, really do?

The Butterfly Defect: How Globalization Creates Systemic Risks, and What to Do About It
by Ian Goldin and Mike Mariathasan
Published 15 Mar 2014

In our view, it is not only regulators that need to become aware that growing complexity cannot be fought with ever more complex rules but also managers and others, who should allow themselves to rely more on basic ethics and intuition. For example, when bonuses spiral beyond all historical precedents, remuneration committees should not need to be forced to show restraint. Similarly, when low-paid or even unemployed individuals are buying second homes on credit and housing markets bubble, it should be obvious even outside the banking sector that there is an unsustainable boom. Acting on intuition becomes even more important when there are increasing risks of being paralyzed by analysis using ever more complex data. 3 Supply Chain Risks We have argued that globalization has contributed to economic integration, efficiency gains, and growth but also to the hidden systemic risks that materialized in the 2007/2008 financial crisis.

Bad Samaritans: The Guilty Secrets of Rich Nations and the Threat to Global Prosperity
by Ha-Joon Chang
Published 4 Jul 2007

The money game is in our genes – after all, paper money is a Chinese invention!’ When it joined the organization in 2024, China revalued its currency, the renminbi, by four times and fully opened its capital market. For a while, the Chinese economy boomed as though the sky was the limit. But the resulting real estate and stock market bubbles burst in 2029, requiring the largest IMF rescue package in history. Soaring unemployment and IMF-imposed cuts to government food subsidies led to riots and eventually to the rise of the Yuan-Gongchandang (Real Communist) movement, fuelled by the seething resentment of the ‘losers’ in a society that had moved from the near-absolute equality of Maoist communism to Brazilian-style inequality in the space of less than two generations.

The Seventh Sense: Power, Fortune, and Survival in the Age of Networks
by Joshua Cooper Ramo
Published 16 May 2016

Complicated systems are packed with parts, but they are predictable. It’s the complex ones that really change the rules. And once a mesh of complex connection is really flowing, it produces surprising interaction. Precisely because there is no central plan, the best of these linked systems create, in a sense. From computer crashes to market bubbles. Castells’s social protests emerged in this complex way, appearing like condensate in the jar of the post-2008 economic crisis. Researchers following in his wake studied the Spanish anti-austerity movement of 2011 and found that it was composed largely of new organizations that blossomed from connectivity.

Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism
by George A. Akerlof and Robert J. Shiller
Published 1 Jan 2009

But in all of this debate no one has offered any real evidence to think that the volatility is rational.6 The price changes appear instead to be correlated with social changes of various kinds. Andrei Shleifer and Sendhil Mullainathan have observed the changes in Merrill Lynch advertisements. Prior to the stock market bubble, in the early 1990s, Merrill Lynch was running advertisements showing a grandfather fishing with his grandson. The ad was captioned: “Maybe you should plan to grow rich slowly.” By the time the market had peaked around 2000, when investors were obviously very pleased with recent results, Merrill’s ads had changed dramatically.

Radical Markets: Uprooting Capitalism and Democracy for a Just Society
by Eric Posner and E. Weyl
Published 14 May 2018

It especially appealed to a Silicon Valley mentality that grew from the counterculture of the 1960s.8 During the 1990s, venture capital poured in to commercialize the booming Internet before online services had established how they would monetize their offerings. Internet companies relentlessly pursued users under the banner “usage, revenues later” (a “backronym” for “url”). While partly driven by the dot-com stock market bubble, this strategy was also influenced by the dominant position Microsoft had established by offering its operating system at relatively low cost and in a form compatible with many hardware platforms. The “network effects” created by this strategy were widely viewed as placing Microsoft in a position to reap enormous rewards.9 This encouraged many venture capitalists to fund services that rapidly enlarged their user base even if their business model was unclear.

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

The next act in this economic drama will not resemble others. No one can predict what exactly will trigger the next shock even if the bear market in many equity markets in the first half of 2022 signaled that the latest asset bubble was nearing an end. There are plenty of candidates: a massive market bubble bursting as in 1929; a surge in inflation forcing central banks to tighten monetary policy in a draconian way, leading to an unsustainable rise in interest rates; pandemics worse than COVID-19 as zoonotic diseases transmitted from animals to humans become more frequent and virulent; a corporate debt crisis stemming from a credit crunch as interest rates rise; a new housing bubble and then bust clobbering homeowners and lenders; a geopolitical shock like the war between Russia and Ukraine in 2022 escalating and becoming more severe, leading to further spikes in commodity prices and inflation; other geopolitical risks; and the rising risk of another global recession triggered by the confluence of the above risks.

Growth: From Microorganisms to Megacities
by Vaclav Smil
Published 23 Sep 2019

These trajectories include erratic advances with no easily discernible patterns (often seen in stock market valuations); simple linear gains (an hourglass adds the same amount of falling sand to the bottom pile every second); growth that is, temporarily, exponential (commonly exhibited by such diverse phenomena as organisms in their infancy, the most intensive phases in the adoption of technical innovation, and the creation of stock market bubbles); and gains that conform to assorted confined (restrained) growth curves (as do body sizes of all organisms) whose shape can be captured by mathematical functions. Most growth processes—be they of organisms, artifacts, or complex systems—follow closely one of these S-shaped (sigmoid) growth curves conforming to the logistic (Verhulst) function (Verhulst 1838, 1845, 1847), to its precursor (Gompertz 1825), or to one of their derivatives, most commonly those formulated by von Bertalanffy (1938, 1957), Richards (1959), Blumberg (1968), and Turner et al. (1976).

…

But the final, inescapable power of this reality may seem inapplicable in those cases where exponential growth has been underway for an extended period of time and when it keeps setting new record levels. More than a few normally rational people have been able to convince themselves—by repeating the mantra “this time it is different”—that performances will keep on multiplying for a long time to come. The best examples of these, often collective, delusions come from the history of stock market bubbles and I will describe in some detail just two most notable recent events, Japan’s pre-1990 rise and America’s New Economy of the 1990s. Japan’s economic rise during the 1980s provides one of the best examples of people who should know better getting carried away by the power of exponential growth.

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

In order to sterilize without making huge losses, the PBOC fixes the economywide interest rate at a lower level than the dollar interest rate, both by forcing banks to pay households a low rate on their deposits and by paying a low rate on its own borrowing. A direct effect of such a policy is that China mirrors the United States’ monetary policy. If interest rates in the United States are very low, China also has to keep interest rates low. Doing so risks creating credit, housing, and stock market bubbles in China, much as in the United States. With little freedom to use interest rates to counteract such trends, the Chinese authorities have to use blunt tools: for example, when credit starts growing strongly, the word goes out from the Chinese bank regulator that the banks should cut back on issuing credit.

The Irrational Economist: Making Decisions in a Dangerous World
by Erwann Michel-Kerjan and Paul Slovic
Published 5 Jan 2010

But in all of this debate no one has offered any real evidence to think that the volatility is rational.6 The price changes appear instead to be correlated with social changes of various kinds. Andrei Shleifer and Sendhil Mullainathan have observed the changes in Merrill Lynch advertisements. Prior to the stock market bubble, in the early 1990s, Merrill Lynch was running advertisements showing a grandfather fishing with his grandson. The ad was captioned: “Maybe you should plan to grow rich slowly.” By the time the market had peaked around 2000, when investors were obviously very pleased with recent results, Merrill’s ads had changed dramatically.

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

Usi had essentially built a big red ejector-seat button for Barclays’ trading desk, and while he might have insisted to colleagues that pressing the button was “amoral,” others sitting in his seat later on did not feel the same way. Sue the Asshole In early 2001, Usi’s securitization pipeline was on track to issue $15 billion of CDOs by the end of that year. But there were some troubling headwinds. With the bursting of the dot-com equity market bubble, investors were growing skittish. But Usi was becoming more dependent than ever on Barclays’ weak sales force to sell his Roman androids in order to lock in his profits. Meanwhile, Barclays’ infrastructure had failed to keep up with the rising complexity of Usi’s deals. Agreements by the sales force with shady brokers like A.B.

The Verdict: Did Labour Change Britain?
by Polly Toynbee and David Walker
Published 6 Oct 2011

This, however, was not overspending; it was under-taxing. That did not necessarily mean higher income tax. With courage, Labour might have grappled with wider gaps in the British fiscal system, notably our failure fairly to tax property and wealth. Labour missed a cure: taxes on above-average value properties might have prevented the housing market bubbling into excess. Labour turned away from proper taxation of inheritance, even as a device to pay for the growing cost of social care for older people. The Cameron government attacks Labour for spending the nation into deficit, but a fairer charge is that fiscal cowardice disrupted the sustainability of very necessary spending.

Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street
by William Poundstone
Published 18 Sep 2006

Woods takes a perverse pride in saying that he has not watched a horse race in person in the past eighteen years. He does not find horse races that interesting. Results arrive as instant messages from his agents at the track, punctuated by the appropriate smiling or frowning emoticons. Near the top of the late 1990s stock market bubble, Woods sold short the NASDAQ index. It was an outright gamble that the bubble would burst, and the timing was wrong. Woods says he lost $100 million. “When you look at how much money I have consistently made from the horses, from 1987 onward, compared to what I’ve done in the market,” he said, “horses would seem to be a far safer investment than stocks.”

Phishing for Phools: The Economics of Manipulation and Deception
by George A. Akerlof , Robert J. Shiller and Stanley B Resor Professor Of Economics Robert J Shiller
Published 21 Sep 2015

See also Congress house purchases: closing costs of, 64, 65, 183n21, 200n16; down payments on, 65, 200n14; phishing in, 64–66; real estate fees for, 64–65, 200n13, 200n15; stories of, 64; transaction costs of, xiii, 64–65, 183n21. See also mortgages housing: developers of, 121; duration of stays in, 64, 199–200n11; eviction rates, 18–19, 189n11; homeownership rates, 64, 154 housing markets: bubbles in, 33–34; savings and loan crisis and, 119 Houston real estate market, 121 “How Much Is That Doggie in the Window,” 20–21, 46, 195n5 HRT. See hormone replacement therapy Huffman, David, 188n7 Humboldt University, 100 Icahn, Carl, 128 identity economics, 194–95n3 income distribution, 133, 150, 163, 164 incomes: growth of, 19–20, 21; from Social Security, 154 IndyMac Bank, 29 inflation, 118–19 information: informed vs. uninformed traders, 8, 168; informed vs. uninformed voters, xvi, 74–77; misleading, xi, 7–8; phishing, xi, 75, 137 innovation: economic growth and, 96–99; free markets and, x, xi–xii; predictions of, x; slot machines, viii institutional investors, 29–30, 127, 143 interest rates: on credit cards, 17, 69, 71; Federal Reserve policy on, 118–19; on mortgages, 119; on savings deposits, 120, 220n14 Internal Revenue Service (IRS), 82 International Monetary Fund, xv Internet: addiction to, 150, 227n1; advertising on, 54, 195–96n7; Facebook, 99–100, 150; phishing on, x–xi, 150 Interstate Commerce Commission, 144 investment banks: borrowing by, 24–25; changes in industry of, 26, 28–30; overnight financing by, 28–29, 35, 36; relations with ratings agencies, 30–31, 32–34, 37, 192nn26–27; reputation mining by, 31–33; reputations of, 27; syndicates of, 27; trustworthiness of, 26–28, 30.

Paper Promises
by Philip Coggan
Published 1 Dec 2011

But a country that gives into the devaluation option too often under floating rates eventually suffers from higher inflation and interest rates. Creditors extort their revenge over the long term. The Europeans sought to escape this problem by clubbing together in a single currency, but eventually the strains had to show. 7 Blowing Bubbles ‘Stock market bubbles don’t grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception.’ George Soros, hedge fund manager Where did all the money go? My father-in-law asked that question in the aftermath of the credit crunch of 2007 and 2008, when house prices, share prices and corporate bond prices all tumbled.

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

Because most of these bonds were initially a form of savings, it is likely that this money will be put back into the financial markets (i.e. people won’t suddenly start spending money they had allocted as saving). Using newly-created money to pay down the national debt will pump this money into the financial markets, where it may stay circulating, fuelling financial market bubbles and doing little or nothing to help the real economy. To avoid this, if it was thought desirable to reduce the nominal value of the debt, bonds should be removed from circulation over a period of time. Fund managers would be well aware that a portion of government bonds were being ‘phased out’, but would have around ten to fifteen years in which they could gradually shift their investments away from the bond market and into corporate bonds and the stock market.

Dragnet Nation: A Quest for Privacy, Security, and Freedom in a World of Relentless Surveillance
by Julia Angwin
Published 25 Feb 2014

In the fall of 1999, Wetherell appeared on the cover of BusinessWeek under the headline “Internet Evangelist.” His conglomerate, CMGI, was a poster child for the dot-com boom, with a massive stock market value of $10 billion, despite the fact that it was losing $127 million a year on revenues of just $176 million. By 2001, the dot-com stock market bubble had burst. CMGI’s losses had reached $1 billion a quarter and its stock plummeted to less than $1. Dan quit the company, which eventually folded. But the idea of using cookies to track users survived. Meanwhile, Dan figured that privacy would be the next big thing. In 2001, he launched a privacy software company called Permissus.

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

Indeed, given that the federal expenditures in 1929 were only “about 2.5 percent of gross national product” this was hardly surprising.18 Such policies also seemed increasingly redundant by 1929. Because of the stock-market boom, unemployment had fallen to a postwar low. Even though the state had limited its ambitions to balancing the budget and ensuring convertibility, because of the unexpected bursting of the stock market bubble, Hoover spent $1.5 billion on public works when he became president in 1929. By 1931, overall federal spending was up by a third from its 1929 level.19 Given how small state expenditures remained relative to GDP, however, the now-accelerating decline in private spending meant that tax “receipts dwindled by 50 percent and expenditure rose by almost 60 percent.”20 At this juncture Hoover saw austerity as the only way, and the right way, to restore “business confidence” and balance the budget.

The Constitution of Knowledge: A Defense of Truth
by Jonathan Rauch
Published 21 Jun 2021

“Agents who learn from others in their social network can fail to form true beliefs about the world, even when more than adequate evidence is available,” O’Connor and Weatherall write. “In other words, individually rational agents can form groups that are not rational at all.” Confirmation loops, like market bubbles, can run far afield of reality before they finally break. The cycle is difficult to arrest, because for individuals in the group, group-think can be rational despite being wrong. We face powerful incentives to stay on good terms with our friends and community, and the personal costs of estrangement are high.

Cryptoassets: The Innovative Investor's Guide to Bitcoin and Beyond: The Innovative Investor's Guide to Bitcoin and Beyond
by Chris Burniske and Jack Tatar
Published 19 Oct 2017

In times like these (as in Tulipmania), many subscribe to the “greater idiot” ideal: people can make money so long as they are able to sell the asset at a higher price to an idiot greater than them. A key indicator of the unsustainability of mass speculation is when new and inexperienced entrants stream into the markets. Bubbles are typically worsened by cheap credit, as financial institutions provide speculators the means to take out loans so they can buy more of the asset than they could with cash on hand. In this sense, the financial institutions buy into the speculative bubble as they see the opportunity to make money, just as the institutions around them are making money off loans to frenzied speculators.

Capital Ideas Evolving
by Peter L. Bernstein
Published 3 May 2007

It has become the centerpiece of sophisticated institutional portfolio management. Some practitioners even dare to claim CAPM has blasted the Efficient Market Hypothesis into smithereens. The motivation for this revolutionary development was more than a new perspective on what CAPM could do for investors. After the stock market bubble of the 1990s burst between the end of 2000 and the middle of 2003, many investors were convinced the expected real return on equities in the years ahead would be below the long-term average of around 7 percent. This view was fortified by long-term interest rates on Treasury securities lingering well below the average of 7.1 percent from 1959 to 1999 or 6.5 percent during the bubble years of 1995–1999.

The Permanent Portfolio
by Craig Rowland and J. M. Lawson
Published 27 Aug 2012

Offshore, the Krona slumped as much as 80 percent against the euro, while capital restrictions this year have failed to prevent an 8.1 percent decline, making the Krona the second-worst performer of the 26 emerging-market currencies tracked by Bloomberg.2 In Iceland, an analysis of the event showed that a Permanent Portfolio being run in that country would have offered significant protection over a conventional stock and bond only portfolio. Gold in Icelandic krona was up +259 percent in value while their stock market sank −88 percent in value.3 But even more impressive is that as the Icelandic stock market bubble grew, a Permanent Portfolio investor there would have been moving profits out of stocks and into assets like gold before the bust. When the bust happened, they were automatically in a position to be protected without having to do any market timing. A good portion of their life savings would have been spared during the disaster.

Zucked: Waking Up to the Facebook Catastrophe
by Roger McNamee
Published 1 Jan 2019

The World Wide Web took off in 1994, driven by the Mosaic/Netscape browser and sites like Amazon, Yahoo, and eBay. Businesses embraced the web, recognizing its potential as a better way to communicate with other businesses and consumers. This change made the World Wide Web geometrically more valuable, just as Metcalfe’s Law predicted. The web dominated culture in the late nineties, enabling a stock market bubble and ensuring near-universal adoption. The dot-com crash that began in early 2000 left deep scars, but the web continued to grow. In this second phase of the web, Google emerged as the most important player, organizing and displaying what appeared to be all the world’s information. Apple broke the code on tech style—their products were a personal statement—and rode the consumer wave to a second life.

The Bitcoin Standard: The Decentralized Alternative to Central Banking
by Saifedean Ammous
Published 23 Mar 2018

As the revenue to the producers of the good increases, they can then invest in increasing their production, bringing the price crashing down again, robbing the savers of their wealth. The net effect of this entire episode is the transfer of the wealth of the misguided savers to the producers of the commodity they purchased. This is the anatomy of a market bubble: increased demand causes a sharp rise in prices, which drives further demand, raising prices further, incentivizing increased production and increased supply, which inevitably brings prices down, punishing everyone who bought at a price higher than the usual market price. Investors in the bubble are fleeced while producers of the asset benefit.

The Great Reversal: How America Gave Up on Free Markets
by Thomas Philippon
Published 29 Oct 2019

The inclusion of year fixed effects (Y = yes) means that the regression controls for any common shock that would move all the industries in the same direction in any given year. This is important because the US economy was not (and is not) static over this period: there are booms and busts, a stock market bubble, a terrorist attack, a housing bubble, and a financial crisis. We thus want to make sure that our results are driven by the comparison of industries within the US. Finally, the R2 measures the goodness of fit of the model: 0.07 means that it captures about 7 percent of the changes we see in the data.

The AI Economy: Work, Wealth and Welfare in the Robot Age
by Roger Bootle
Published 4 Sep 2019

This is reminiscent of the situation during the dot-com boom in the early 2000s. At that time it was thought that everything was going to migrate to the net; equally any madcap business idea was bound to make squillions for its originators if only the company name ended in .com. The madness of that time culminated in the bursting of the financial market bubble and the collapse of many businesses – as well as quite a few reputations. Yet the internet has changed the world. And some of the businesses that emerged in that frenzy of excitement and exaggeration have not only survived but have transformed the business landscape – Amazon and Google being preeminent examples.

The Accidental Investment Banker: Inside the Decade That Transformed Wall Street
by Jonathan A. Knee
Published 31 Jul 2006

Rather they, and corresponding changes at all the major investment banks, were driven by the unprecedented economic boom and bust that placed extraordinary pressures on the values that had once prevailed at these institutions. Much has already been written about the various economic “bubbles” of the late 1990s—the Internet bubble, the telecom bubble, the technology bubble and the stock market bubble. Much has also been written about the role of investment banks in fueling these ephemeral bubbles. Much less has been written, however, about the investment banks’ own bubble. While the investment banks in some ways made possible all the other bubbles—by, for example, legitimizing hundreds of speculative start-up companies for public market investors and opining as to the “fairness” of incredible values placed on these businesses—these institutions themselves were fundamentally transformed by the unprecedented number of deals the forces they unleashed created.

Why the West Rules--For Now: The Patterns of History, and What They Reveal About the Future
by Ian Morris
Published 11 Oct 2010

The paradox of social development—the tendency for development to generate the very forces that undermine it—means that bigger cores create bigger problems for themselves. It is all too familiar in our own age. The rise of international finance in the nineteenth century (CE) tied together capitalist nations in Europe and America and helped push social development upward faster than ever before, but this also made it possible for an American stock market bubble in 1929 to drag all these countries down; and the staggering increase in financial sophistication that helped push social development up in the last fifty years also made it possible for a new American bubble in 2008 to shake virtually the whole world to its foundations. This is an alarming conclusion, but we can also derive a third, more optimistic, point from the troubled history of these early states.

…

Fleeing Europe’s contagious rivalries and wars, American politicians left the conductor’s podium empty, withdrawing into political isolation worthy of eighteenth-century China or Japan. While times were good the orchestra improvised and muddled through, but when they turned bad its music became cacophony. In October 1929 a little bungling, a lot of bad luck, and the absence of a conductor turned an American stock market bubble into an international financial disaster. Contagion raced through the capitalist world: banks folded, credit evaporated, and currencies collapsed. Few starved, but by Christmas 1932 one American worker in four was jobless. In Germany it was closer to one in two. Lines of the gray-faced unemployed stretched out, “gazing at their destiny with the same sort of dumb amazement as animals in a trap,” the English journalist George Orwell thought.

The Four Pillars of Investing: Lessons for Building a Winning Portfolio
by William J. Bernstein
Published 26 Apr 2002

I don’t recommend this course of action to all but the hardiest and experienced of souls. If you decide to go this route, you should increase your stock allocation only by very small amounts—say by 5% after a fall of 25% in prices—so as to avoid running out of cash and risking complete demoralization in the event of a 1930s-style bear market. Bubbles and Busts: Summing Up In the last two chapters, I hope that I’ve accomplished four things. First, I hope I’ve told a good yarn. An appreciation of manias and crashes should be part of every educated person’s body of historical knowledge. It informs us, as almost no other subject can, about the psychology of peoples and nations.

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

These models estimated that MBIA faced just a 1-in-10,000 chance of confronting a scenario that would leave it unable to meet all its claims. Yet historical data-based models considered the 1987 stock market crash an event so improbable that it would be expected to happen only once in a trillion years, Ackman explained. “The recent stock market bubble and its collapse are good reminders that the ‘unthinkable’ and the ‘unpredictable’ occur more often than expected,” Ackman wrote. Ackman also pointed out that MBIA was dangerously reliant on its own triple-A credit rating. Without the top rating, MBIA wouldn’t be able to write new business, Ackman said.

How Will Capitalism End?
by Wolfgang Streeck
Published 8 Nov 2016

Unlike the Mediterranean states, the hard-currency countries are wary of both inflation and debt, even though their interest rates are relatively low. Their ability to survive without a loose monetary policy benefits their numerous savers, whose votes carry significant political weight; it also means they don’t need to take on the risk of market bubbles.23 INEQUALITY FROM DIVERSITY It is important to stress that no one version of the interface between capitalism and society is intrinsically morally superior to the others. Every embedding of capitalism in society, every attempt to fit its logic into that of a social order will be ‘rough and ready’, improvised, compromised and never entirely satisfactory for any party.

Complexity: A Guided Tour
by Melanie Mitchell
Published 31 Mar 2009

Economists are interested in how markets become efficient, and conversely, what makes efficiency fail, as it does in real-world markets. More recently, economists involved in the field of complex systems have tried to explain market behavior in terms similar to those used previously in the descriptions of other complex systems: dynamic hard-to-predict patterns in global behavior, such as patterns of market bubbles and crashes; processing of signals and information, such as the decision-making processes of individual buyers and sellers, and the resulting “information processing” ability of the market as a whole to “calculate” efficient prices; and adaptation and learning, such as individual sellers adjusting their production to adapt to changes in buyers’ needs, and the market as a whole adjusting global prices.

Business Lessons From a Radical Industrialist
by Ray C. Anderson
Published 28 Mar 2011

Yet many of us also had a growing sense that the company I had founded back in 1973, and had reinvented in 1994, needed to be reinvented again to reach our Mission Zero goal. That was another tall order, and the timing was far from perfect. As I write, 2008 is shaping up to be a very challenging year on many, many fronts. We’ve seen a historic storm in energy costs, the bursting of the housing market bubble, a credit crisis, a liquidity freeze, and the federal takeover of financial institutions. Bankruptcies and foreclosures are in every direction you look. And the year has a quarter to go! What will the next months, next year, bring? Setting the stage for the Brasstown Valley meeting, our CEO since 2001, Dan Hendrix, observed, “Many are bracing for an economic slowdown.”

Breakout Nations: In Pursuit of the Next Economic Miracles
by Ruchir Sharma
Published 8 Apr 2012

Iraq, Iran, and Syria are still too closed to foreign investors to qualify even as frontier markets. The key frontier markets in the Middle East are the petro-monarchies of the Gulf region, and the largest of these by far, Saudi Arabia, is open only to investors from within the Gulf. That led to a spectacular stock market bubble in 2005, with Saudi Arabia’s stock market becoming the biggest in the developing world—larger than China’s or India’s—based solely on oil-rich locals and neighbors. It was a good deal crazier than the dotcom insanity that gripped the United States at the turn of the millennium, and it popped soon enough, but when a bubble pops in the Gulf it does not make a sound.

Six Degrees: The Science of a Connected Age
by Duncan J. Watts
Published 1 Feb 2003

We had done some work, as part of my Ph.D. research, on the evolution of cooperation in small-world networks and on a special case of what is called a voter model (similar to the spiral-of-silence problem studied by Noelle-Neumann). But at the time, we hadn’t thought of either of these problems as related to contagion. Now it seemed clear that contagion in a network was every bit as central to the outbreak of cooperation or the bursting of a market bubble as it was to an epidemic of disease. It just wasn’t the same kind of contagion. This point is particularly important because typically when we talk about social contagion problems, we use the language of disease. Thus, we speak of ideas as infectious, crime waves as epidemics, and market safeguards as building immunity against financial distress.

The Blockchain Alternative: Rethinking Macroeconomic Policy and Economic Theory
by Kariappa Bheemaiah
Published 26 Feb 2017

Shadow Banking and Systemic Risk In 2005, Alan Greenspan gave a speech titled “Economic Flexibility ” at the Federal Reserve Board in which he stated, “These increasingly complex financial instruments have contributed to the development of a far more flexible, efficient, and hence resilient financial system than the one that existed just a quarter-century ago. After the bursting of the stock market bubble in 2000, unlike previous periods following large financial shocks, no major financial institution defaulted, and the economy held up far better than many had anticipated.” 17 The financial instruments that he was referring to were the entities and instruments created by commercial banks ,18 to form complex credit intermediation chains involving multiple layers of securitization ,19 multiple leveraged parties, and an opaque distribution of risk (Dobbs et al, 2015).

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

Sr., 140 Bernanke, Ben, 3, 6, 51, 66, 79–80, 83–84, 117, 171–72, 206, 223, 251–52 AIG bailout and, 138–39 Bear Stearns rescue and, 109–12, 114, 116 deflation, fighting, 150–51 on failure to save Lehman, 145–46 fed funds rate decisions and, 91, 102–3, 118, 119, 154, 157–59 hints at “additional stimulus” in speech, August 2010, 193–94 housing bubble and, 23, 74 inflation targeting and, 195, 196 Lehman collapse and, 135 money market fund’s breaking the buck and, 140–42 press conferences by, 213–14 QE2 and, 197, 198, 199 reappointment as Fed chairman of, 177–78, 184–85 stress tests and, 170–71 Time names “Person of the Year,” 2009, 182 unsanctioned signals to market by, 153–54 zero-interest-rate policy (ZIRP) and, 159, 160, 162, 163 Bianco, Jim, 207, 227–28 Black Monday, 64–65 blackout period, 152–53 Blankfein, Lloyd, 135, 143–44 Blinder, Alan, 48–50 “Blob That Ate Monetary Policy, The” (Fisher & Rosenblum), 180 Bloomberg, 217 BNP Paribas, 168 Board of Governors, 42–43, 48 bond-buying program, 173–74, 224, 227–30 Boockvar, Peter, 238 Booth, Danielle DiMartino (author) daily briefings of Fisher by, 100–101 at Dallas Morning News, 18 data sets tracked by, 56, 73–74, 183, 186 at Donaldson, Lufkin & Jenrette, 11–18 Duca’s attack on work of, 183, 202–3 early experiences working at Dallas Fed, 33–42, 46 Economic Letters coauthored by, 74–75, 99 experience with debt of, 24–25 hired by Rosenblum at Dallas Fed, 30–32 invited to Camp Kotok, 221–22 lunch with Fisher, 24 midcycle briefings of, 208 at pre-briefings for Fisher, 164–67 recommendations for Federal Reserve, 263–66 sources of, 56–57, 207 transfer to FIS, 203–4, 206–7 warns of housing market bubble, 23–28, 32–33 Born, Brooksley, 16 Boykin, Robert, 61 Brainard, Lael, 43 Brunner, Karl, 47 bubbles, 6, 21, 216–17. See also housing bubble Buffett, Warren, 21 Bullard, James B., 160, 212, 247 Bunning, Jim, 79, 114 Burns, Arthur F., 48, 60 Bush, George W., 86, 109, 142 Callan, Erin, 130–31 Carney, Mark, 260 “Cash for Clunkers” plan, 176 Cashin, Arthur, 200–201, 220, 251 Cassano, Joseph J., 137–38 Cayne, James E., 105–7, 112, 115 central banking, 260–61 Chase Manhattan, 14 China, 208, 261 Chomsky, Noam, 9 Chrysler Financial, 169 Citigroup, 53, 110, 121, 128, 166, 168 Cleveland Fed, 36 Clinton, Bill, 16, 86 Clinton, Hillary, 260 “Closing the Gap” (Boston Fed), 21–22 CNBC, 25–26, 107 collateral agents, 127 collateralized debt obligations (CDOs), 15–18, 27–28, 57, 124 Collins, Nancy, 68 Commercial Paper Funding Facility (CPFF), 167, 169 commercial paper market, 141–42 commodity bubble, 216 “From Complacency to Crisis” (Duca, Rosenblum, & DiMartino Booth), 74–75 core PCE inflation rate, 77–78, 83, 247 Corrigan, Gerry, 53 Corzine, Jon, 109 counterparty risk, 108 Countrywide, 100 Courage to Act, The (Bernanke), 251–52 Cox, Michael, 62, 63 creative destruction, 63 credit default swaps (CDSs), 94–95, 98, 105, 124 Credit Suisse, 15 crude oil, 247 Dallas Fed, 36–38, 62–65, 70–73, 82 Dallas Morning News, 18, 21, 31 Dealey, George Bannerman, 44 debt, 9–10, 24–25, 251 Decherd, Robert, 18 “Deflation: Making Sure ‘It’ Doesn’t Happen Here” (Bernanke), 150–51 derivatives, 14, 15–18, 51, 52, 126–29 AIGFP insurance policies for, 137–38 Born’s attempt to regulate, 16–17 CDOs, 15–18, 27–28, 57, 124 Deutsche Bank, 168 Diamond, Peter, 194–95 Dimon, Jamie, 29, 110–12, 114, 134, 135, 226 discount window, 118 District Banks, 36–38, 43–45, 67, 70–72.

The Economics of Enough: How to Run the Economy as if the Future Matters
by Diane Coyle
Published 21 Feb 2011

This was a self-fulfilling process, as jobs elsewhere were only paying so much because those other businesses had hired the same pay consultants, who told every client company that they should pay their executives enough to attract the best people, and therefore set off an ever-upward ratchet. All sense of due restraint seemed to vanish from the upper reaches of business, as executives came to misinterpret the rise in share prices due to a stock-market bubble as the result of their own talent, and worse, came to feel that extraordinarily high pay was their due because they saw so many other people among their social contacts and peer group making so much. Many bankers are still in this mindset, although executive pay outside the financial markets is gradually deflating.

eBoys
by Randall E. Stross
Published 30 Oct 2008

“We are, to some degree.” One argument in Priceline’s favor, Harvey suggested, was that even at an astronomical price, “we’re in an environment where the company doesn’t have to be successful for us to make money.” Kagle recoiled at the thought of backing a company that could exist only atop a stock-market bubble. “I’m never going to sign up for that program. You’re betting too much on things that are out of your control.” Dunlevie had another proposal for Beirne. Benchmark would put $10 million in at the asking price, and Beirne would take on hiring the CEO but not go on the board. It would be a way of playing a more active role in the company’s growth without having to use up a board slot on an investment in which the equity stake was small.

Arriving Today: From Factory to Front Door -- Why Everything Has Changed About How and What We Buy
by Christopher Mims
Published 13 Sep 2021

People who were sentient during the first dot-com bubble of the late 1990s remember the delivery service Kozmo, because you could order literally anything: a can of Coke, a pack of gum, a CD. (Recall that the first iPod wasn’t released until 2001.) Whatever it was, Kozmo had to deliver it within thirty minutes. With the benefit of hindsight, it’s clear the whole enterprise epitomized a stock market bubble so inflated, an era of optimism so wild-eyed, it was as if investors, especially the ones who were supposed to know better, had truly lost their minds. Webvan, slightly more sane than Kozmo and therefore only a tenth as famous, just delivered groceries, and only in a limited area. In 1999, at the absolute height of the dot-com madness, Mick was hired onto the “business process team” at Webvan.

What Would the Great Economists Do?: How Twelve Brilliant Minds Would Solve Today's Biggest Problems
by Linda Yueh
Published 4 Jun 2018

In the year following the crash, the US money supply fell by a relatively small 2.6 per cent as the Federal Reserve cut interest rates and lent heavily to the banking sector. Injecting a great deal of cash into banks gave them some much-needed liquidity and prevented the stock market collapse from precipitating an immediate banking crisis. However, the Fed believed that further loosening of monetary policy might pump up the stock market bubble and lead to inflation. Between 1930 and 1933 the US money supply contracted by over a third, coinciding with a raft of bank failures. Between October 1930 and March 1933 there were four major bank runs. Most of these occurred between August 1931 and January 1932, when there were 1,860 bank failures and the money supply fell at an annual rate of 31 per cent.

Philanthrocapitalism
by Matthew Bishop , Michael Green and Bill Clinton
Published 29 Sep 2008

The first was the era of the “robber barons” in the nineteenth century: a period when industrial magnates exerted enormous political influence through their firms, described by American historian Arthur Schlesinger Sr. as a “government of the corporations, by the corporations and for the corporations.” The second was in the 1920s, as Republican tax cuts after 1921, designed to keep the economy going after the wartime boom, fueled the stock market bubble that burst spectacularly in 1929. A populist target during this period was Andrew Mellon, then one of the three wealthiest men in America. Having built his fortune in banking, Mellon was U.S. Treasury secretary throughout the 1920s, pushing down the rate of income tax and estate tax. He was vilified by Franklin D.

Value of Everything: An Antidote to Chaos The
by Mariana Mazzucato
Published 25 Apr 2018

Writing in the 1930s, one of the most influential critics of finance, John Maynard Keynes, was upfront about what financial speculation entailed. In his lifetime he observed how financial markets and public attitudes to financial trading were changing, becoming ends in themselves rather than facilitators of growth in the real economy. When speculation spread from a rich leisure class to the wider population, it drove the stock market bubble that ushered in the Wall Street Crash and 1930s depression; but as public spending helped to restore people's jobs and incomes, those with money again began to gamble it on stocks and shares. Wall Street was, he said, ‘regarded as an institution of which the proper social purpose is to direct new investment into the most profitable channels in terms of future yield'.

The Great Economists: How Their Ideas Can Help Us Today
by Linda Yueh
Published 15 Mar 2018

In the year following the crash, the US money supply fell by a relatively small 2.6 per cent as the Federal Reserve cut interest rates and lent heavily to the banking sector. Injecting a great deal of cash into banks gave them some much-needed liquidity and prevented the stock market collapse from precipitating an immediate banking crisis. However, the Fed believed that further loosening of monetary policy might pump up the stock market bubble and lead to inflation. Between 1930 and 1933 the US money supply contracted by over a third, coinciding with a raft of bank failures. Between October 1930 and March 1933 there were four major bank runs. Most of these occurred between August 1931 and January 1932, when there were 1,860 bank failures and the money supply fell at an annual rate of 31 per cent.

Common Stocks and Uncommon Profits and Other Writings
by Philip A. Fisher
Published 13 Apr 2015

In addition to learning that a low price-earnings ratio was just as aptto be a sign that a stock was an investment trap as that it was a bargain, acute awareness of my miserable investment performances during the Great Bear Market made me vividly aware of something of possibly even greater importance. I had been spectacularly right in my timing of when the bull market bubble was about to burst, and almost right in judging the full force of what was to happen. Yet except for a possible small boost in my reputation among a very small circle of people, this had done me no good whatsoever. From then on, I was to realize that all the correct reasoning about an investment policy or about the desirability or purchase or sale of any particular stock did not have the least bit of value until it was translated into action through the completion ofspecific transactions.

Anatomy of the Bear: Lessons From Wall Street's Four Great Bottoms
by Russell Napier
Published 18 Jan 2016

The events of 1995 to 2002 indicate that some synthesis of old Wall Street thinking and new Wall Street ideas could create a more relevant and useful approach for financial practitioners. And that brings us back to the value of financial history. The recent expansion and busting of yet another stock market bubble may be a good enough reason to suggest there is more in heaven and earth than is dreamed of in the philosophy of efficiency. There is also another reason. In 2002, the behavioural psychologist Daniel Kahneman, along with Vernon I. Smith, was awarded the Nobel Prize in economics for ‘having integrated insights from psychological research into economic science, especially concerning human judgement and decision-making under uncertainty’

The Equality Machine: Harnessing Digital Technology for a Brighter, More Inclusive Future
by Orly Lobel
Published 17 Oct 2022

Indeed, data is power, and there will always be powerful people who will want to cover their tracks, maintain secrecy, and try to block data mining that exposes inequality. We need to make sure that people are empowered to use data—and have the power to mine it—to expose inequality. Opaque Algorithms, Validation, and Policy Competition among for-profit firms in providing automated—and diversity-enhancing—hiring services has the market bubbling, but competition also means keeping data secret. Companies are notoriously tight-lipped about their internal statistics and processes, and they often try to shield such information behind labels like “proprietary,” “confidential,” and “trade secrets.” Such secrecy makes it more difficult to check claims about the effectiveness of new screening processes.

Truevine: Two Brothers, a Kidnapping, and a Mother's Quest: A True Story of the Jim Crow South
by Beth Macy
Published 17 Oct 2016

To a person, blue-collar African Americans in Roanoke aspiring to join the middle class in the late 1920s “walked to work. Didn’t nobody have a car,” Holland recalled. “I mean, Dr. Pinkard and Dr. Claytor and maybe the lawyer had a car.” Holland didn’t recall what brand Cabell’s car was (nor did anyone in the family), just that “it was real nice.” Buick models introduced in 1928, at the peak of the stock market bubble, ranged from $1,195 to $1,850, around the average American’s annual salary. Back then, the speed limit outside city limits was forty-five miles per hour. A trip from Roanoke to Charlottesville that now takes two hours by way of the four-lane interstate then took eleven. Roads were twisty and riddled with potholes.

The Geek Way: The Radical Mindset That Drives Extraordinary Results
by Andrew McAfee
Published 14 Nov 2023

That reason can be hard to discern, though, because overconfidence causes so many harms. Textbook Cases of Cognitive Bias As psychologist Scott Plous puts it, “Overconfidence has been called the most ‘pervasive and potentially catastrophic’ of all the cognitive biases to which human beings fall victim. It has been blamed for lawsuits, strikes, wars, and stock market bubbles and crashes.” As we see with the examples of both Jeffrey Katzenberg at Quibi and Reed Hastings at Netflix, being an experienced and successful executive is no guarantee against overconfidence. Katzenberg launched the ill-conceived Quibi app without widely beta testing it. And Hastings, after being disastrously wrong about Qwikster, was still overconfident in his judgment about both kids’ programming and the demand for downloading among Netflix subscribers (Hastings thought it was a “1 percent use case”; actual demand was at least 15 percent).

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

Specifically, he would not be buying obligations of the federal government of longer than one year, because he did not have faith in what Washington—and in particular Greenspan—was doing. “We have never seen the magnitude of liquidity that is being thrown at the system,” he wrote. “We believe that this is a bond market bubble”—one similar in scale to the dot-com bubble.4 Since announcing his strike, Rodriguez had continued to invest in the obligations of Fannie and Freddie, which had been created by the government but operated (mostly) as private concerns. However, the mortgage market was looking ever more frothy.

The Long Boom: A Vision for the Coming Age of Prosperity
by Peter Schwartz , Peter Leyden and Joel Hyatt
Published 18 Oct 2000

And Gore is much more knowledgeable about global warming and environmental issues, which we think will emerge as a bona fide crisis in the next decade and pose one of the greatest challenges ever faced by the global community. Al Gore could rise to that challenge. Whatever the outcome of this election, though, the Long Boom could carry on. The Long Boom is bigger than any one person, or one party, or one country. The Long Boom can and will absorb setbacks—electoral disasters, regional economic downturns, stock market bubbles and crashes. The Long Boom will not be ended easily. There have been too many positive developments in the last twenty years that are providing momentum that will help carry us through the next twenty. There are too many positive trends in motion today and too many people already out there creating a more positive future.

Finance and the Good Society
by Robert J. Shiller
Published 1 Jan 2012

See bubbles Spielberg, Steven, 188–89 Sprenkle, Case, 79 Squam Lake Group, 22–23, 218 Standard & Poor’s / Case-Shiller national home price index, xv Statman, Myer, 78, 80 status. See inequality; social status; wealth stewardship, 17, 43, 231; and accountants, 101; and educators, 103 Stigler, George A, 95 Stiglitz, Joseph, 30 stockbrokers. See brokers stock markets: bubbles, 47, 185, 186; crashes, 60, 171, 184; excess volatility, 170–72, 185; high-frequency trading, 60–61; history, 46–47; importance, 46; investment banks and, 45–46; regulation of, 46; responses to new information, 59–60; specialists, 57; traders, 57; trading in, 46, 48. See also New York Stock Exchange stock options: as incentives, 21, 22, 23, 24, 48–49; pricing, 132; trading, 78–80 stocks: dilution, 49; dividends, 171, 185; employee ownership, 215–16; history, 46–48, 144; as incentives, 48–49; initial public offerings, 45, 47; inside information, 23, 29–30; issuing, 45, 46, 47, 48–49; prices, 20–21, 133, 171–72, 185–86 Stokey, Nancy, 29–30, 77 storytelling, 180, 181 structured investment vehicles (SIVs), 43 subprime crisis, xv–xvi, 50, 51, 52, 53, 62, 157, 220 sumptuary laws and taxes, 191, 192 swaps, 75 Sweden, mutual fund managers, 28 Swensen, David, 31 Switzerland, homeownership, 213 symmetry, beauty and, 131–32, 133 tail risk, 35 Tarbell, Ida M., 164 tariffs, xvii, 92 Tauzin, Billy, 88 taxes: cheating on, 101; consumption, 192, 253n14 (Chapter 27); estate, 192–93, 253n15 (Chapter 27); fiscal policy, 114–16, 117, 133; gift, 204–5; progressive, 116, 192, 193–94, 217–18, 235; sumptuary, 191, 192.

Multicultural Cities: Toronto, New York, and Los Angeles
by Mohammed Abdul Qadeer
Published 10 Mar 2016

New York’s Department of City Planning observes that “immigrants’ concentration in many neighbourhoods 68 Multicultural Cities Map 4.2 New York’s neighbourhoods by ethnic concentrations, 2010 The Social Geography of Multicultural Cities 69 Photo 4.2 Little Italy, New York (courtesy Milagros Dorregaray) have resulted in ethnic enclaves, where an immigrant group leaves its social, economic and cultural imprint on a neighbourhood.”21 New York residential geography changes relatively more quickly owing to the city’s periodic property-market bubbles and mobility of residents. In the 2000s, Manhattan has become largely racially White. Even Harlem, the historic bastion of the Black community, is being gentrified and becoming mixed. The ethnic dynamics of New York is fluid, leading to the reconstruction of racial boundaries. Nancy Foner points out that New York is a place of “hybrid and fluid exchanges across group boundaries” that represents a new kind of multiculturalism.22 Like the enclaves in Toronto, New York’s enclaves have also dispersed among them people of other ethno-racial backgrounds.

On the Grand Trunk Road: A Journey Into South Asia
by Steve Coll
Published 29 Mar 2009

In India, the difficulty became obvious in the spring of 1992 when an ambitious Bombay insurance clerk named Harshad Mehta, attempting to forge a rise modeled on the Ambanis’, brought the entire stock market crashing down through a series of speculative manipulations involving state-owned and foreign banks. As Mehta inflated a speculative market bubble and drove prices up, up, up with his manipulations, India’s new shareholding class cheered, astonished at the promised magic of capitalism. Nobody, it seemed, was prepared to question Mehta’s highly dubious genius because to do so would be to undermine the fragile consensus around the new order.

The Personal MBA: A World-Class Business Education in a Single Volume
by Josh Kaufman
Published 2 Feb 2011

If you don’t know how to act in Rome, doing what the Romans do is a pretty safe bet. Social Proof can take on a life of its own. Fads often form when one person takes an action, others perceive it as a Social Signal, then act the same way, creating a social Feedback Loop (discussed later). Pet rocks, yellow Lance Armstrong “Live Strong” bracelets, viral videos, and stock market bubbles all gain power via social proof—if so many other people are doing it, it’s easy to come to the conclusion that you should probably do it too. Testimonials are an effective form of Social Proof often used in business to close more sales. There’s a reason why Amazon.com and other online retailers prominently feature user reviews: stories about people who have been pleased with a purchase send a clear signal that an item is safe to buy, so more people purchase.

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

Some executives at the company had proposed that the bank actually begin investing in subprime product, and while the decision was working its way through the appropriate channels, a unit of the bank went ahead and purchased a $2 billion subprime CDO. The proposal was ultimately rejected, but the CDO stayed on the books. Winters refers to the episode as “an outright control lapse” and “the biggest single mistake we’ve made in a long time.” • • • The International Monetary Fund estimates that stock market bubbles happen about every 13 years, and that housing bubbles occur every two decades. That’s what makes it so amazing that the majority of Wall Street firms were caught unawares by the credit debacle. Dimon’s daughter Laura called him in the fall of 2007 and asked, “Dad, what’s a financial crisis?” Without intending to be funny, he replied, “It’s something that happens every five to 10 years.”

Pivotal Decade: How the United States Traded Factories for Finance in the Seventies
by Judith Stein
Published 30 Apr 2010

Wages rose, poverty rates fell sharply, but CEO earnings skyrocketed. In 1980 CEOs at large companies earned forty-five times as much as ordinary workers. By 1995 the ratio rose to 160 times as much. In 1997 it reached 305, and by 2000 it rose to 458.100 The stock market boom was also a stock market bubble. The ratio of price to earnings had traditionally been 14.5. In 2000, the ratio reached 30, as investors imagined that, despite current earnings, each tech corporation was a future Microsoft. Then the overinvestment in telecommunications led to a collapse, which erased $2 trillion in value and threw half a million people out of work in 2002.101 Global Crossing consumed $12 billion from 1997 until 2002, when it went bankrupt.102 WorldCom lost even more after it went under shortly afterward.

Life Inc.: How the World Became a Corporation and How to Take It Back
by Douglas Rushkoff
Published 1 Jun 2009

No, the land would be at the very bottom of the pyramid. Instead, they invested in mortgages other people took out to buy land. As Alan Greenspan eventually explained it to Newsweek magazine, “This particular problem was an accident waiting to happen. The euphoria that existed in the expansion of the housing-market bubble induced investors around the world who’d had a huge buildup in liquidity—largely because of the lower real long-term interest rates that occurred as a consequence of the end of the cold war—to invest in something with a higher rate of return. And, lo and behold, the sub-prime mortgage market provided it.”

Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives
by Satyajit Das
Published 15 Nov 2006

He seemed keen on an index. A group of known unknowns or unknown unknowns was better than a single one of the same kind. Dealers love sophisticated investors. They are easy pickings. On the platform In the late 1990s, the world caught technology fever. The pandemic was the worst since the last financial market bubble that was only a few years before. New terms were in vogue – TMT (Technology, Media, Internet); TIME (Technology, Internet, Media). Investment banks and dealers cashed in on the infatuation with all things technological. They underwrote IPOs, issued shares, traded securities, arranged mergers and acquisitions, and pro- 05_CH04.QXD 17/2/06 128 4:22 pm Page 128 Tr a d e r s , G u n s & M o n e y vided advice.

The Death of Money: The Coming Collapse of the International Monetary System
by James Rickards
Published 7 Apr 2014

Scott, 252 flash crash, 63, 270, 296–97 floating-exchange-rate regime, 235 Fonda, Jane, 1 food price inflation, 3 food stamps, 246 Ford, Gerald, 271–72 forward guidance, 83, 86, 185–88 forwards, gold, 275, 285–86 France, 235, 236 Franco-Prussian War, 115 Frank, Barney, 204, 205 Frankenreich, 112, 113–14 Freakonomics (Levitt and Dubner), 32–33 Freddie Mac, 248 Friedman, Milton, 84, 168, 263 Friedman, Tom, 256 Froman, Michael, 195, 196, 202–3 futures, gold, 275, 284–86 G7, 139, 140, 147 G9, 139–40 G20, 140, 147, 202, 203 Galloni, Alessandra, 131–32 Gang of Ten, 138, 139 Geithner, Timothy, 195, 196, 203, 244 General Electric, 255 General Theory of Employment, Interest and Money, The (Keynes), 246–47 Genoa Conference, 1922, 221–22 Gensler, Gary, 195, 196 geopolitics, 12–13 Germany, 125, 127, 136–37, 281 gold repatriation by, 231–32 GIIPS (Greece, Ireland, Italy, Portugal, Spain), 140, 142–46 Glass-Steagall, repeal of, 196, 253, 296 gold, 215–42 BIS transactions, 276–78 central bank acquisition of, since 2010, 225–30 central bank manipulation of, 271–81 Charlemagne’s switch from gold to silver standard, 114 Chávez’s repatriation of, 40, 231 China’s accumulation of, 12, 61, 226–30, 282–84, 296 classical gold standard, 1870–1914, 176, 234–35 constructing new gold standard, 237–42 contract money system, role in, 169–71 contracts based on, risks associated with, 217–18 disorderly price movements, implications of, 295–96 dollar convertibility abandoned, in 1971, 1, 2, 5, 209, 220, 235, 285 dollar standard, 234–35 drop from 1980 highs, 2 forwards, 275, 285–86 futures, 275, 284–86 Germany’s repatriation of, 231–32 gold exchange standard, 221–22, 224, 234–35 gold-to-GDP ratios, 157, 279–82 Great Depression caused by gold myth, 221–24 IMF sales of, 235–36, 277 as investment portfolio recommendation, 298–99 Iranian trading of, in financial war with U.S., 55–56 lease arrangements, 275, 284 market panics caused by gold myth, 224 monetary policy, and classical gold standard, 176 monetary system, role in, 217, 220–25 as M-Subzero, 280, 283–84 nature of, 218–20 as numeraire, 219–20 price rise of, 1977 to 1980, 1 price rise of, 2006 to 2011, 3 private market demand for, 230 quantity insufficient to support world trade and finance myth, 220 repatriation of, 40, 231–34 reserves, rebalancing of, 279–84 return-to-gold-standard scenario, 293–94 as risk-free asset, 219 Russia’s accumulation of, 12, 229–30 shadow gold standard, 236 storage of, at Federal Reserve and Bank of England vaults, 230–31 swaps, 275 Switzerland’s repatriation of, 232–33 U.S. attitude to, shift in, 235, 236 Gold and Foreign Exchange Committee, 272–73 Goldberg, Jonah, 294 Gold Bloc devaluations, 222 Goldman Sachs, 32–33, 128, 139, 140, 205, 206, 262 gold-to-GDP ratios, 157, 279–82 Goodhardt, Charles, 71, 72, 87, 188 Goodhardt’s Law, 71, 87 Gotthard Base Tunnel, 123 government debt repayment, impact of deflation on, 9, 258 government program dependency, in U.S., 246 Graeber, David, 255 Grant, James, 177 Great Depression, 84, 85, 125–26, 155, 221–22, 223–24, 234, 244, 245 Greece, 128, 133–34, 142, 153, 200, 290 greed, 25 Greenspan, Alan, 76, 77, 122 gross domestic product (GDP) of China, 93, 96 components of, 84, 96 debt-to-GDP ratio, 9, 159–60, 173, 258–59, 261 of U.S., 96, 244 Gulf Cooperation Council (GCC), 12, 150, 152–57 monetary integration process and, 153–57 as quasi-currency union, 153 Hague Congress, 116 Hall, Robert, 86–87 Hamilton, Alexander, 120–21 Han Dynasty, 90 Hanke, Steve, 80 Haydn, Michael, 37 Hayek, Friedrich, 70–71, 72, 87 hedge fund covert operations, 47–51 Hemingway, Ernest, 256 Herzegovina, 136 Himes, James, 284 Holocaust, 115 Holy Roman Empire, 114, 115 Hong Ziuquan, 91 Hoover, Herbert, 85 housing market bubbles in, 75, 76–77, 248 collapse of, 2007, 248, 296 rise in, since 2009, 291 wealth effect and, 72, 73 HSBC, 227 Hu Jintao, 151–52, 202 Hunt, Lacy H., 74, 79 Hunt brothers, 217 Hyundai, 82 ImClone Systems, 25 income inequality, in China, 106 India, 12, 139, 151.

Against Intellectual Monopoly
by Michele Boldrin and David K. Levine
Published 6 Jul 2008

Both theoretical and, to a lesser extent, empirical research suggest this possibility.”17 P1: PDX head margin: 1/2 gutter margin: 7/8 CUUS245-08 cuus245 978 0 521 87928 6 April 29, 2008 15:42 194 Against Intellectual Monopoly Several of these studies examine or are influenced by the upswing in patenting that occurred in the United States in the mid-1980s. That upswing followed the establishment of a special patent court in the United States in 1982; it turned into an explosion in the roaring 1990s, paralleling the dot-com stock market bubble, but it did not stop after that bubble burst. In 1983 in the United States, 59,715 patents were issued against 105,704 applications; by 2003, 189,597 patents were issued against 355,418 applications. In twenty years, the flow of patents roughly tripled. Kortum and Lerner focus specifically on the surge in U.S. patents, and make no claim as to whether this means more or less productivity growth.

The Billionaire and the Mechanic: How Larry Ellison and a Car Mechanic Teamed Up to Win Sailing's Greatest Race, the Americas Cup, Twice
by Julian Guthrie
Published 31 Mar 2014

With the second campaign, he was involved at the beginning during the regattas in San Francisco and Newport, but then lost control after the team moved to Europe. Larry had come to realize that it was important for him to get to know the team, and for the team to know him. “I detached from the first campaign because of 9/11 and the Internet stock market bubble bursting,” he said to Russell. “But there’s no excuse for the second campaign. I thought we had the right formula when we won in San Francisco and Newport with Chris Dickson as tactician and Gavin Brady driving. But then Chris decided to drive, Gavin left the team, and the die was cast. Everything depended on Chris, who was at the helm of the team and the boat.

Money for Nothing
by Thomas Levenson
Published 18 Aug 2020

But as the date for the deal to go live approached, that gentle trot became a gallop. The Company’s shares stood at £198 on March 29, £220 on the thirtieth, £255 on April 1, £275 on the second, when the House of Commons approved the South Sea Act—and then, stunningly, £350 on the fourth. That was a price too far for the moment, the market bubbling over the rim of sense, and the stock settled into a range between £310 and £320 up to April fourteenth. That seemingly reckless ascent was what led those critics Defoe had mocked to suggest that South Sea shares had become “exorbitant.” At almost triple the price of three months earlier, Company stock represented an explosion of paper wealth that seemed wholly divorced from any material cause in the real world: a successful voyage, a new mill, acres to be brought under the plow.

Work: A History of How We Spend Our Time
by James Suzman
Published 2 Sep 2020

Nor did it mention immigration, or that in the ever more globalised marketplace for senior executives, talent could be sourced from almost anywhere regardless of local demographic trends. To future historians, the ‘war for talent’ may appear to be one of the most elaborate corporate conspiracies of all time. Future economists might simply regard this as a market bubble as irrational and inevitable as any that came before or since. But others, who recognise that most of the rest of us are also suckers for flattery, may view it more sympathetically. After all, those who benefited from the surge in remuneration greatly appreciated the reassurance that they were worth every penny they were paid.

Surveillance Valley: The Rise of the Military-Digital Complex
by Yasha Levine
Published 6 Feb 2018

Mitch Kapor, “Where Is the Digital Highway Really Heading?” Wired, March 1, 1993. 104. Joshua Quittner, “The Merry Pranksters Go to Washington,” Wired, June 1, 1994. 105. “Thanks in part to a confluence of extraordinary economic, technological, and political currents, its technocentric optimism became a central feature of the biggest stock market bubble in American history. Its faith that the Internet constituted a revolution in human affairs legitimated calls for telecommunications deregulation and the dismantling of government entitlement programs elsewhere as well,” remarks Fred Turner in From Counterculture to Cyberculture while examining Wired’s place in the deregulatory and privatization frenzy of the 1990s. 106.

Adam Smith: Father of Economics
by Jesse Norman
Published 30 Jun 2018

According to the Efficient Market Hypothesis, financial asset prices are always right. It follows from this that there can be no such thing as an asset price bubble or market overshoot: since asset prices always reflect fundamental value, rapidly inflating asset prices can only reflect rising expectations of future returns. Because there can be no market bubbles, moreover, there can be no role for central banks to prick or deflate them; indeed some economists—including Milton Friedman—have suggested that central banks should be abolished altogether. But the Efficient Market Hypothesis goes further. It means, in effect, that markets are memoryless. If past events played any role in predicting price movements, then a sufficiently savvy investor could in principle game the market and make a riskless profit.

Limitless: The Federal Reserve Takes on a New Age of Crisis
by Jeanna Smialek
Published 27 Feb 2023

During the late 1990s, for instance, he resisted the idea of preemptive interest rate hikes because he suspected that a burst in productivity from new technologies, like computers and software, might allow for lower unemployment without a corresponding increase in inflation.[31] He was right. The shock that eventually brought that expansion to its knees was not runaway price gains but a stock market bubble centered on internet and technology companies. Even as Greenspan’s careful judgment shored up his status, and interest in the central bank’s decisions abounded on Wall Street, the Fed continued to operate in the shadows. The Fed had in the 1980s shifted away from Volcker’s practice of targeting a rate of growth in the nation’s money supply and back to focusing on interest rates—specifically, the federal funds rate, which commercial banks charge one another to borrow reserves overnight.[32] But that transition went unannounced, and the Fed remained silent about when it actually made policy rate adjustments.[33] Wall Street typically figured out whether there had been a rate change by watching market movements as the New York Fed’s markets desk bought and sold securities.

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

That said, he was not alone in sounding the alarm; a host of other well-placed observers predicted various elements of the financial crisis, and their insights helped Roubini connect the dots and lay out a vision that incorporated their prescient insights. Roubini’s former colleague at Yale University, Robert Shiller, was far ahead of almost everyone in warning of the dangers of a stock market bubble in advance of the tech bust; more recently, he was one of the first economists to sound the alarm about the housing bubble. Shiller was but one of the economists and market watchers whose views influenced Roubini. In 2005 University of Chicago finance professor Raghuram Rajan told a crowd of high-profile economists and policy makers in Jackson Hole, Wyoming, that the ways bankers and traders were being compensated would encourage them to take on too much risk and leverage, making the global financial system vulnerable to a severe crisis.

The Tyranny of Nostalgia: Half a Century of British Economic Decline
by Russell Jones
Published 15 Jan 2023

This was a far cry from the original Keynes, however, and in particular two of its basic tenets: the notion of radical uncertainty rendering economies inherently unstable, and his scepticism that monetary initiatives – especially changes in short-term interest rates – would be sufficient for macro-­stabilization policy, especially during a slump.13 And like the new classicists, the new Keynesians had no room in their models for financial market bubbles or banking system collapses. from high theory to practicalities The policy implications of these developments in economic theory during the 1960s and 1970s significantly influenced the manifesto of the Conservative Party ahead of the 1979 general election. Party leader Margaret Thatcher was no trained economist but, tutored by Keith Joseph, the economic philosophy she instinctively cleaved to was drawn from the monetarism of Friedman and the new classical school’s restatements of pre-Keynesian principles, together with Friedrich von Hayek’s exaggerated claims that attempting to deliver social justice in a market economy was a chimera, and that economic planning was a slippery slope that would inevitably lead to dictatorship.14 Thatcher came to power in May 1979, determined to control inflation, create a more stable macroeconomic environment, roll back the borders of the state and promote self-reliance, thereby transforming the country’s economic performance for the better and reversing its relative decline.

The Last Tycoons: The Secret History of Lazard Frères & Co.
by William D. Cohan
Published 25 Dec 2015

He never ran for office." Such an extraordinary comparison of an investment banker to a man of great political and economic accomplishment is simply not conceivable today (with the possible, ironic exception of Bob Rubin). Felix alone compares favorably. The aftereffects of the collapsing stock market bubble and the plethora of corporate scandals have left many observers believing that bankers are self-interested and greedy rather than purveyors of independent advice. "Investment bankers, as a class, are the Ernest Hemingways of bullshit," explained one well-known private-equity investor. Felix had few peers in the days when offering CEOs strategic wisdom was the metier of a select handful; he has none now that it is the medium of the many.

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By setting up his own $1 billion fund, Steve--by then one of the Democratic Party's biggest fund-raisers--had taken himself out of the running to be in Gore's cabinet, should the vice president have won the presidency in 2000. With their shocking departure, all four partners' Class A percentage interests were thrown back into the pool for future reallocation. The bursting of the market bubble on March 10, 2000, when the Nasdaq peaked intraday at 5,132, had a grave impact on Wall Street. Tens of thousands of investment bankers lost their jobs, and the compensation for those who remained was much diminished. Eliot Spitzer, the ambitious New York state attorney general (now governor), orchestrated the $1.4 billion Wall Street research settlement, and prosecutors began the steady stream of indictments of corporate executives from, among others, Enron, WorldCom, Adelphia, and HealthSouth.

McMafia: A Journey Through the Global Criminal Underworld
by Misha Glenny
Published 7 Apr 2008

In retrospect, it appears that by year-end 1988 the Japanese stock market was in the midst of a full-fledged bubble.” It was not long before the extraordinary speculation on the Nikkei stock exchange found its way into the property market. Financial corporations and banks wanted to transfer the notional money of the stock market bubble into hard assets, and property was the best bet. It did not take long for the vortex of speculation to consume the existing housing stock, and so the banks and big corporations started looking for new land to develop. But the postwar construction mania had ensured there were no empty spaces on which to build.

Civilization: The West and the Rest
by Niall Ferguson
Published 28 Feb 2011

The first is that similar projections of inexorable ascent used to be made for Japan. It too was supposed to overtake the United States and to become the number one global economic superpower. So, the argument goes, China could one day suffer the fate of Japan after 1989. Precisely because the economic and political systems are not truly competitive, a real-estate or stock-market bubble and bust could saddle the country with zombie banks, flat growth and deflation – the plight of Japan for the better part of two decades now. The counter-argument is that an archipelago off the east coast of Eurasia was never likely to match a continental power like the United States. It was credible to predict even a century ago that Japan would catch up with the United Kingdom, its Western analogue – as it duly did – but not that it would overhaul the United States.

Wall Street: How It Works And for Whom
by Doug Henwood
Published 30 Aug 1998

Pri--vate debt flows, mainly bonds rather than bank loans, grew 337%, and direct investment — taking a position in existing real enterprise or the establishment of a new one — rose 203%. As a result, the official share of long-term finance fell from over half in 1989 to a third in 1994. Mexico was the poster country of the emerging markets bubble. The wave of privatization, deregulation, and capital market opening led to a rush of capital — $68 billion in portfolio capital between 1991 and the first half of 1994, compared to a net outflow of $3.6 billion from 1988 through 1990. Mexican financial markets, a fraction of the size of the U.S. market, boomed.

The Great Turning: From Empire to Earth Community
by David C. Korten
Published 1 Jan 2001

Rising poverty and unemployment, inequality, violent crime, broken families, and environmental deterioration all contributed to a growing fear of what the future might hold. Now it turns out that those were the good days. The financial shock that subsequently swept through Asia, Russia, and Latin America in the late 1990s, the bursting of the stock market bubble in the opening days of the twenty-first century, and a continuing wave of corporate financial scandals have drawn attention to a corruption of the institutions of the global economy well beyond what I documented in 1995. Pundits continue to speak optimistically about economic growth, gains in jobs, and a rising stock market, yet working families, even with two incomes, find it increasingly difficult to make ends meet and fall ever deeper into debt as health care and housing costs soar out of reach.

From Counterculture to Cyberculture: Stewart Brand, the Whole Earth Network, and the Rise of Digital Utopianism
by Fred Turner
Published 31 Aug 2006

It won two National Magazine Awards, saw its readership grow to more than three hundred thousand a month, developed a book publisher (HardWired) and a variety of online ventures (HotWired, Suck), and helped spawn a clutch of magazines focused on the Internet and the New Economy, including Fast Company, Business 2.0, the Industry Standard, and Red [ 207 ] [ 208 ] Chapter 7 Herring. Thanks in part to a confluence of extraordinary economic, technological, and political currents, its technocentric optimism became a central feature of the biggest stock market bubble in American history. Its faith that the Internet constituted a revolution in human affairs legitimated calls for telecommunications deregulation and the dismantling of government entitlement programs elsewhere as well. And each month, its Technicolor pages of gadgets and gurus cataloged the delights awaiting information professionals in the New Economy.

The Case Against Education: Why the Education System Is a Waste of Time and Money
by Bryan Caplan
Published 16 Jan 2018

Taxing education doesn’t just butt against conventional presumptions in favor of education and the status quo. It runs afoul of the libertarian presumption in favor of leaving people alone. Since the proposal is untried, its effects remain speculative—and we shouldn’t try it unless we know it works wonders. The False Savior of Online Education We lived through the stock market bubble and the housing bubble. Investments paid off for years, then collapsed. Will education share the same fate? Plenty of parents and pundits suspect so. For a rising generation of technophiles, however, the debate is over. They’re convinced our education bubble is ready to burst, starting with higher education.46 Why now?

Capitalism in America: A History
by Adrian Wooldridge and Alan Greenspan
Published 15 Oct 2018

Hoover was not one of them—indeed he lambasted Mellon’s presumed liquidationist ideas in his memoirs and claimed credit for ignoring them. He believed firmly that modern capitalist economies needed the guidance of an activist government. Hoover met with the Federal Reserve to discuss the stock-market bubble just two days after his inauguration and he periodically backed several different ways of dealing with it, from raising interest rates to discouraging buying on margin. The first president to have a telephone on his desk, he often started the day by ringing up Thomas Lamont at J. P. Morgan to keep track of the market.22 He reacted swiftly to the slowing of the economy by proposing a mixture of tax cuts and investment in infrastructure.

Evil Geniuses: The Unmaking of America: A Recent History
by Kurt Andersen
Published 14 Sep 2020

But if you sincerely think the market is undervaluing your stock because investors just don’t get your amazing company, then why not buy all of your shares back and go private? Essentially every CEO now does buybacks because everyone else does them. Their stock-price-based performances will be judged this quarter and this year against all those other CEOs, so it’s a mad recursive loop. How is the result not a stock market bubble—an extremely long-lasting bubble but a bubble nevertheless? It’s unsustainable: you can take 10 percent of your company’s shares out of circulation, then 20 percent, then 30 percent or even (as IBM has done over the last two decades) 60 percent, but you can’t keep doing that forever. For a decade, since before she was in the Senate, Elizabeth Warren has been saying that stock buybacks provide only a “sugar high for companies in the short term.”

The Asian Financial Crisis 1995–98: Birth of the Age of Debt
by Russell Napier
Published 19 Jul 2021

Macro factors and financial market pricing For all but the exceptional investor, some consideration of macro factors proved to be essential in assessing the future returns from financial assets. In the Asian financial crisis one learned quickly which macro factors counted and which didn’t. Too late for many, the focus shifted from the ‘miracle’ of high economic growth to the instability of how it had been financed. Having witnessed the stock market bubbles inflate and burst in Japan and Taiwan, I was predisposed to believe that there was more to assessing the outlook for asset returns than the so-called fundamentals scrutinised by micro investors. One day in a bookshop in the City of London, I stumbled upon a book that purported to be able to explain, at least in part, the relationship between macro factors and financial market pricing.

Radical Uncertainty: Decision-Making for an Unknowable Future
by Mervyn King and John Kay
Published 5 Mar 2020

rather than tweak processes which have acquired their own seemingly irresistible momentum! More narratives of finance In chapter 12 we described how Robert Shiller has argued that swings in sentiment are important in understanding why large and disruptive changes in economic behaviour occur – whether stock market bubbles and crashes or sharp collapses in output during a depression. 11 But Shiller’s focus on narratives is rather one-sided. He uses the concept to explain behaviour which others have called ‘fads and fashions’. In other words, he sees narratives as a departure from ‘rational’ optimising behaviour and therefore as irrational and emotional, despite their importance in explaining behaviour.

Animal Spirits: The American Pursuit of Vitality From Camp Meeting to Wall Street
by Jackson Lears

The encompassing name for this power was animal magnetism, which merged in the vernacular with the practice of mesmerism and the awareness of electricity. As these ideas and practices multiplied, a ferment of vital force enveloped religious and financial affairs, sparking eruptions of emotional energy in evangelical revivals as well as stock market bubbles and panics. Revivalistic religion provided a burgeoning new arena for frenzied entrancement. By the early 1700s, Protestant Dissenters had rejected ritual and declared the only legitimate prayer to be spontaneous; in subsequent decades, evangelical revivalists on both sides of the Atlantic upped the emotional ante.

All the Devils Are Here
by Bethany McLean
Published 19 Oct 2010

Not long after the Fed chairman’s speech, Orkin wrote in his monthly letter to investors, “Since the first shot was fired across the credit bow in February 2007, investors have been force-fed a constant diet of half-truths and whole lies regarding the nature and status of the mammoth mortgage-based derivative machine and the housing market bubble it inflated... The fact that the credit crisis has now turned into a confidence crisis should serve as a wake-up call to Wall Street, the Treasury and the Fed.” In late November 2007, a senior vice president in structured finance at Lehman Brothers, Deepali Advani, who had previously worked at Moody’s, forwarded an e-mail from one of the firm’s traders to a handful of his contacts.

The Alchemists: Three Central Bankers and a World on Fire
by Neil Irwin
Published 4 Apr 2013

Investors had learned a lesson from the Great Moderation: that central bankers had mastered the economy. Inflation, in all the advanced nations and a growing number of emerging ones, had been conquered. Central banks could contain the impact of any adverse event that might come along, whether a financial crisis in fast-growing Asian economies or a popped stock market bubble in the United States, and prevent any widespread losses. In a seemingly riskless world, investors were willing to take all the more risk. Greenspan, who held more power over the financial future than any other individual on the planet, understood these interconnections, if not the degree to which the world economy was in peril.

The Unwinding: An Inner History of the New America
by George Packer
Published 4 Mar 2014

In effect, those middle decades were a kind of Indian summer following the seventies, and it lasted such a long time—about a quarter century, if you started with the end of the Reagan recession in 1982 and ended with the housing collapse in 2007—that it would be almost impossible to go back to where things stood before it all began and try to reset. Throughout the Indian summer, the same key institutions continued to erode, with a lot of recession years and financial panics along the way. One way to see the Indian summer was as a series of bubbles: the bond bubble, the tech bubble, the stock bubble, the emerging markets bubble, the housing bubble … One by one they had all burst, and their bursting showed that they had been temporary solutions to long-term problems, maybe evasions of those problems, distractions. With so many bubbles—so many people chasing such ephemera, all at the same time—it was clear that things were fundamentally not working.

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

However, we can’t ignore the many other markets in which some dealers are active because how well or poorly dealers fare in these markets can and has affected their money market activities; for example, traders at firms that were affected by the events surrounding Russia’s default on its debt in 1998, as well as other events such as the bursting of the stock 1 Ellen Harshman, Fred C. Yeager, and Timothy J. Yeager, “The Door Is Open, but Banks Are Slow to Enter Insurance and Investment Arenas,” The Regional Economist, Federal Reserve Bank of St. Louis, October 2005. market bubble in 2000, were in no mood or position to be active market makers and position takers in Treasuries, money markets, or mortgage-backed securities. Agent and Principal Roles In dealing in money market paper, dealers may wear one of two hats, agent or principal. If a dealer acts as an agent, it gets a fee from an issuer for showing and selling the issuer’s paper to investors.

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More recent examples show that the possibility continues to exist for sharp changes in the yield spread. For example, during the Asian financial crisis of 1998 and following Russia’s default, the spread between 3-month CDs and 3-month bills widened to 153 basis points. The spread was also as wide as 100 basis points in 2000 when the stock market bubble was bursting. FDIC Coverage The FDIC insures deposits in banks via the Bank Insurance Fund (BIF), and it insures deposits kept in savings and loan institutions via the Savings Association Insurance Fund (SAIF). Legislation was passed in 2003 by both the U.S. House of Representatives and the U.S.

More Money Than God: Hedge Funds and the Making of a New Elite
by Sebastian Mallaby
Published 9 Jun 2010

Paul Tudor Jones, internal Tudor e-mail, June 28, 2008. 14. “I just thought even though one was a weekly and one was a daily, the chart patterns were so similar and the backdrops were so similar—two huge credit bubbles with enormous overcommitment to a variety of asset markets, real estate and stock market bubbles happening simultaneously.” Paul Tudor Jones, interview with the author, April 15, 2009. 15. Ibid. 16. After the fact, policy makers argued that they let Lehman fail because they lacked the legal authority to do otherwise. But policy makers had successfully stretched the legal bounds of their authority in other cases, and they acted aggressively again in the following days with respect to AIG, and then with respect to Goldman Sachs and Morgan Stanley, which were hurriedly granted full access to the Fed’s emergency loans.

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

China was not alone, as other countries such as Germany, Japan, South Korea, and Taiwan used similar strategies to boost growth. Chinese funds helped keep American interest rates low, encouraging increasing levels of borrowing, especially among consumers. The increased debt fueled further consumption, housing, and stock market bubbles, enabling consumers to decrease savings as the paper value of investments rose. The consumption fed increased imports from China, creating further outflows of dollars via the growing trade deficit. The overvalued dollar and an undervalued renminbi exacerbated U.S. demand for imported goods. Low U.S. interest rates also drove American pension funds and investors to seek out more risky investments.

The Big Score
by Michael S. Malone
Published 20 Jul 2021

Fifteen years later, the same home, its slab heating and all-electric kitchen about to go on the fritz, went on the market at $200,000. Not only that, but during the intervening decade and a half that house may have gone through four upwardly mobile owners, each dutifully paying a commission to his or her real estate agent. This housing boom combined with the inflationary seventies to create a market bubble, with speculators racing around buying up every house in sight and young buyers betting on the permanence of inflation with balloon payments. Real estate agents had a field day. By this time every important national real estate firm (Century 21, Red Carpet, Coldwell Banker) had set up shop in the Valley, providing employment for legions of housewives looking to liberate themselves and, just as important, a refuge for victims of the nasty aerospace layoffs at Lockheed in the beginning of the decade.

Slouching Towards Utopia: An Economic History of the Twentieth Century
by J. Bradford Delong
Published 6 Apr 2020

The Federal Reserve feared that continued stock speculation would produce a huge number of overleveraged financial institutions that would go bankrupt at the slightest touch of an asset price drop. Such a wave of bankruptcies would then produce an enormous increase in fear, a huge flight to cash, and the excess demand for cash that is the flip side of a “general glut.” The Federal Reserve decided that it needed to curb the stock market bubble to prevent such speculation. And so it came to pass that its attempt to head off a depression in the future brought one on in the present.9 Previous depressions had been—and future depressions would be—far smaller than the Great Depression. In the United States, the most recent economic downturns had inflicted significantly less damage: in 1894, the unemployment rate had peaked at 12 percent; in 1908, at 6 percent; and in 1921, at 11 percent.

The Intelligent Investor (Collins Business Essentials)
by Benjamin Graham and Jason Zweig
Published 1 Jan 1949

* The first four sentences of Graham’s paragraph could read as the official epitaph of the Internet and telecommunications bubble that burst in early 2000. Just as the Surgeon General’s warning on the side of a cigarette pack does not stop everyone from lighting up, no regulatory reform will ever prevent investors from overdosing on their own greed. (Not even Communism can outlaw market bubbles; the Chinese stock market shot up 101.7% in the first half of 1999, then crashed.) Nor can investment banks ever be entirely cleansed of their own compulsion to sell any stock at any price the market will bear. The circle can only be broken one investor, and one financial adviser, at a time. Mastering Graham’s principles (see especially Chapters 1, 8, and 20) is the best way to start. 1 This document, like all the financial reports cited in this chapter, is readily available to the public through the EDGAR Database at www.sec.gov. 2 The demise of the Chromatis acquisition is discussed in The Financial Times, August 29, 2001, p. 1, and September 1/September 2, 2001, p.

The Power Law: Venture Capital and the Making of the New Future
by Sebastian Mallaby
Published 1 Feb 2022

BACK TO NOTE REFERENCE 59 Moritz also felt that the dual share structure contradicted the ideal that Google embodied: that information should be spread widely so that decisions could emerge from open debate rather than from entrenched bosses. Moritz, author interviews. BACK TO NOTE REFERENCE 60 Those who claim that stock market investors under-appreciate future company profits are by definition arguing that overvaluation of stocks will not occur. Given the history of market bubbles, this claim is unconvincing. BACK TO NOTE REFERENCE 61 Google IPO Prospectus, Aug. 18, 2004, www.sec.gov/Archives/edgar/data/1288776/000119312504143377/d424b4.htm. Again, it should be noted that public tech companies including Netflix, Amazon, Salesforce, and Tesla made similar pronouncements and were rewarded with buoyant share prices.

The Code: Silicon Valley and the Remaking of America
by Margaret O'Mara
Published 8 Jul 2019

And new talent kept coming to town—hungry young people like Chamath Palihapitiya, who sensed that the worlds of tech and finance and media were now intertwined so tightly that no bear market could untangle them.5 If you looked a little closer in those twilight days of 2001, past the armies of résumé-wielding MBAs and the acres of empty cubicles, you could see a next generation of Valley companies confidently gaining their footing—and the pop of the market bubble was the best thing that could have happened to them. Silicon Valley not only didn’t die, it became wealthier and more influential than ever in the first two decades of the twenty-first century, propelled on overlapping waves of software-powered businesses: search, social, mobile, and cloud computing.

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

This is a far less complex structure than Lorenz’s model, but it has one thing in common with it: the model does not converge to its equilibrium (which lies in the center of the loop), but orbits around it indefinitely. 9.7 A closed loop in employment and wages share of output It is also easily extended to capture more aspects of the real world, and when this is done, dynamic patterns as rich as those in Lorenz’s model appear – as I detail in Chapters 13 and 14. Real-world phenomena therefore simply cannot be modeled using ‘comparative statics’ or equilibrium – unless we are willing to believe that cyclones are caused by something ‘exogenous’ to the weather, and stock market bubbles are caused by something outside the economy. Complexity theory has established that such phenomena can be modeled dynamically, so that abandoning static equilibrium analysis does not mean abandoning the ability to say meaningful things about the economy. Instead, what has to be abandoned is the economic obsession with achieving some socially optimal outcome.

The Wealth of Networks: How Social Production Transforms Markets and Freedom
by Yochai Benkler
Published 14 May 2006

Access to underlying documents and statements, and to [pg 233] the direct expression of the opinions of others, becomes a central part of the medium. 415 Figure 7.3a: Diebold Internal E-mails Discovery and Distribution 416 Critiques of the Claims That the Internet Has Democratizing Effects 417 It is common today to think of the 1990s, out of which came the Supreme Court's opinion in Reno v. ACLU, as a time of naïve optimism about the Internet, expressing in political optimism the same enthusiasm that drove the stock market bubble, with the same degree of justifiability. An ideal liberal public sphere did not, in fact, burst into being from the Internet, fully grown like Athena from the forehead of Zeus. The detailed criticisms of the early claims about the democratizing effects of the Internet can be characterized as variants of five basic claims: 418 Figure 7.3b: Internal E-mails Translated to Political and Judicial Action 419 1.

Liberalism at Large: The World According to the Economist
by Alex Zevin
Published 12 Nov 2019

But that was somewhat misleading, for it was precisely the unshackling of finance that had led to the crisis which Emmott had celebrated as the harbinger of renewal and modernity. ‘The idea of Japan as a superpower is based primarily on the country’s huge exports of capital and on its sudden emergence as the world’s largest net creditor.’18 And when a rising yen threatened to staunch this flow after 1985, the stock market bubble that pumped it back up bedazzled him. From 1986 to 1989, residential and commercial property prices doubled. Foreign exchange and government bond futures markets – back in 1980 ‘long on exotic names and bewildering regulations and short on business volume, innovation and freely flowing cash’ – leapt ahead of those in Western countries.

Principles of Corporate Finance
by Richard A. Brealey , Stewart C. Myers and Franklin Allen
Published 15 Feb 2014

Sections 13-2 through 13-4 review the evidence for and against efficient markets. The evidence “for” is considerable, but over the years a number of puzzling anomalies have accumulated. Advocates for rational and efficient markets also have a hard time explaining bubbles. Every decade seems to find its own bubble: the 1980s real estate and stock market bubble in Japan, the 1990s technology stock bubble, and the recent real estate bubble that triggered the subprime crisis. Part of the blame for bubbles goes to the incentive and agency problems that can plague even the most rational people, particularly when they are investing other people’s money. But bubbles may also reflect patterns of irrational behavior that have been well documented by behavioral psychologists.

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But in 2005 The Economist surveyed the widespread increase in property prices and warned: [T]he total value of the residential property in developed economies rose by more than $30 trillion over the past five years to over $70 trillion, an increase equivalent to 100% of those countries’ combined GDPs. Not only does this dwarf any previous house-price boom, it is larger than the global stock market bubble in the late 1920s (55% of GDP). In other words it looks like the biggest bubble in history.26 Shortly afterward the bubble burst. By March 2009, U.S. house prices had fallen by nearly a third from their peak in 2006.27 How could such a boom and crash arise? In part because banks, credit rating agencies, and other financial institutions all had distorted incentives.

Too big to fail: the inside story of how Wall Street and Washington fought to save the financial system from crisis--and themselves
by Andrew Ross Sorkin
Published 15 Oct 2009

Richard Bernstein, the respected chief investment strategist for Merrill Lynch, had sent out an alarming note to clients that morning: “Bear Stearns’s demise should probably be viewed as the first of many,” he wrote, tactfully not mentioning Lehman. “Sentiment is just beginning to catch on as to how broad and deep the credit market bubble has been.” By midmorning Fuld was getting calls from everybody—clients, trading partners, rival CEOs—all wanting to know what was going on. Some demanded reassurance; others offered it. “Are you all right?” asked John Mack, the CEO of Morgan Stanley and an old friend. “What’s going on over there?”

MONEY Master the Game: 7 Simple Steps to Financial Freedom
by Tony Robbins
Published 18 Nov 2014

It will explode once we get the kind of policies I think will eventually get back in. Because there’s no way you’re gonna take the growth component out of America. The innovation going on in this country is profound. I mean, I live in the San Francisco area, where it’s just going, busting at the seams wherever you walk. It’s there. TR: Are we in a market bubble with the Fed controlling rates the way they are? Where you would have to take significant risk to see rewards? The market seems to be the only place for the money to go. How long does that last? CS: Well, I’m not a great fan of the present policy of the Federal Reserve. I think manipulating rates, as long as they have, is really not the right decision.

On the Edge: The Art of Risking Everything
by Nate Silver
Published 12 Aug 2024

A focal point can become a self-fulfilling prophecy, i.e., everyone wants to go to Harvard because everyone else wants to go to Harvard. Fold (poker): Giving up on your hand and pitching it to the dealer, losing any investment you’ve made in the pot. FOMO: An acronym for “fear of missing out,” the attitude of many participants during a market bubble. Foom: An onomatopoeic word—imagine the sound of some server powering on in an OpenAI back office at a volume barely more than a whisper—to refer to a very fast AI takeoff. Fox: Along with a hedgehog, one of two decision-making personality typologies proposed by Phil Tetlock. Per the Greek poet Archilochus—“The fox knows many things, but the hedgehog knows one big thing”—foxes tend to be incrementalist, probabilistic jacks-of-all-trades, and are often willing to compromise or defer to the wisdom of crowds.

The Rough Guide to New York City
by Martin Dunford
Published 2 Jan 2009

In 1971, art dealers Leo Castelli, André Emmerich, and John Weber, along with Castelli’s ex-wife Ileana Sonnabend, moved here from their offices uptown. Perhaps the most over-the-top exhibition occurred in 1991 in Sonnabend’s gallery, when Jeff Koons debuted his Made in Heaven collection, a series of graphic photos and sculptures featuring his porn-star wife, La Cicciolina. The art-market bubble burst a year later, and Castelli died in 1999, at the age of 91; Sonnabend now operates from West Chelsea and today the building is occupied by a DKNY store and residential apartments. At 393 West Broadway, about a block south, you can find Broken Kilometer, another installation by Walter de Maria (Wed–Sun noon–3pm & 3.30–6pm; free; W www.brokenkilometer.org).

The River Cottage Fish Book: The Definitive Guide to Sourcing and Cooking Sustainable Fish and Shellfish
by Hugh Fearnley-Whittingstall
Published 19 Nov 2007

(Some Korean men swear by them as a performance-enhancing “love food”—but we reckon it’s just the beer talking.) For a while, the Far East market for whelks boomed, and many British crab and lobster fishermen switched to laying whelk pots, in order to ride the gravy train. But like so many fish market bubbles, it soon burst. First foreign buyers found cheaper sources, squeezing the British fishermen ever harder on price. Then, in the late 1990s, the South Korean economy took a dive. The whelk price halved in a matter of months and orders for British whelks rapidly shrivelled up. Even in the boom times, whelk fishing was never a glamorous occupation.

The Age of Surveillance Capitalism
by Shoshana Zuboff
Published 15 Jan 2019

Alex Berenson and Patrick McGeehan, “Amid the Stock Market’s Losses, a Sense the Game Has Changed,” New York Times, April 16, 2000, http://www.nytimes.com/2000/04/16/business/amid-the-stock-market-s-losses-a-sense-the-game-has-changed.html; Laura Holson and Saul Hansell, “The Maniac Markets: The Making of a Market Bubble,” New York Times, April 23, 2000. 25. Ken Auletta, Googled: The End of the World as We Know It (New York: Penguin, 2010). 26. Levy, In the Plex, 83. 27. Michel Ferrary and Mark Granovetter, “The Role of Venture Capital Firms in Silicon Valley’s Complex Innovation Network,” Economy and Society 38, no. 2 (2009): 347–48, https://doi.org/10.1080/03085140902786827. 28.

Money and Power: How Goldman Sachs Came to Rule the World
by William D. Cohan
Published 11 Apr 2011

This was their way of making sure hot deals stayed hot. If we didn’t buy in the aftermarket, we wouldn’t get any shares in the next IPO.” In a July 2002 article in the Washington Times, Maier was quoted as saying about Goldman and laddering: “Goldman from what I witnessed, they were the worst perpetrator. They totally fueled the [market] bubble. And it’s specifically that kind of behavior that has caused the market crash. They built these stocks upon an illegal foundation[, then] manipulated [the stock] up, and ultimately, it really was the small person who ended up buying in” and losing money. He added, “Goldman created the convincing appearance of a winner, and the trick worked so well that they seduced further interest from other speculators hoping to participate in the gold rush.