short selling

Beyond the Random Walk: A Guide to Stock Market Anomalies and Low Risk Investing
by Vijay Singal
Published 15 Jun 2004

Some other observed facts related to the weekend effect are also consistent with the short-selling explanation: • The weekend effect has been in existence for more than a hundred years: Short selling has been permitted on U.S. exchanges since 1858. After the stock market crash in 1929, there was an attempt to curb the practice. However, short selling was actually disallowed on only two days in 1931. New rules governing short selling were introduced by the SEC under the Securities and Exchange Act of 1934. • Friday returns are lower when there is Saturday trading: Consistent with the short selling explanation, short sellers may wait until Saturday to close their positions, reducing the Friday return. • The weekend effect is larger around long weekends: When the market is closed for a holiday weekend, more short sellers are likely to close short positions by buying back on the last trading day of the week and reopen their positions after the market reopens.

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For an average stock, however, options are either unavailable or too expensive to trade, causing the weekend effect for the equally weighted index to be relatively unchanged.) 43 44 Beyond the Random Walk Short Selling as the Primary Explanation Given evidence of the weekend effect, what is the cause? The primary explanation for the weekend effect relies on the behavior of short sellers with regard to unhedged short sales, as distinct from hedged short sales.3 Hedged short sales include merger arbitrage where an investor short-sells the bidder and buys the target (see Chapter 9), index arbitrage between futures and cash markets, short selling by put option writers to hedge their positions, shorting against the box (short-selling a stock that is held long in another account) to postpone realization of capital gains, and other similar activities where the short position is hedged by an offsetting similar position.

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Due to high premarket trading in Nasdaq stocks and high price volatility immediately after the market opens, it is always prudent to wait until about 10 A.M. to place orders. In addition, it is best to specify a limit price for short selling unless it is a very actively traded stock with a daily volume of more than 2 percent of the number of outstanding shares. In accordance with the strategy for stock mergers, place an order to short-sell. Establishing Initial Positions in Targets 1. Stock mergers. For stock deals, always short-sell the acquirer before buying the target. Not only is it more difficult to shortsell, but sometimes it is not possible at all. If you buy the target before short selling, the profits could evaporate with a fall in the target’s and acquirer’s stock prices while you try to shortsell the acquiring firm’s stock. 2.

Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined
by Lasse Heje Pedersen
Published 12 Apr 2015

—David Einhorn Policy makers and the general public also sometimes want to fight short sellers: Policymakers and the general public seem to have an instinctive reaction that short selling is morally wrong. Short selling has been characterized as inhuman, un-American, and against God (Proverbs 24:17: “Do not rejoice when your enemy falls, and do not let your heart be glad when he stumbles”). Hostility against short selling is not limited to the United States. In 1995, the Finance Ministry in Malaysia proposed mandatory caning as the punishment for short sellers. —Lamont (2012) Lamont (2012) further documents how the U.S. Congress held hearings in 1989 on the problems with short-selling, during which a representative described short-selling as “blatant thuggery.”

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—Bernard Baruch, testimony before the Committee on Rules, House of Representatives, 1917 Furthermore, short-selling comes with other benefits. It allows hedging. It makes markets far more liquid, reducing investors’ transaction costs. Short-selling makes markets more liquid by making market prices more informative, by increasing turnover, and by allowing market makers to provide liquidity on both sides of the market while hedging their risks. Hence, overall allowing short-selling is clearly the right decision as short-selling is for the better. Does this mean that short-selling can never be associated with misbehavior? Of course not. If short sellers are trying to manipulate the market, this is clearly wrong and illegal, but price manipulation is wrong and illegal both when traders are buying and when they are short-selling—so this is not specific to short-selling (e.g., “pump and dump” is price manipulation on the long side).

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If short sellers are trying to manipulate the market, this is clearly wrong and illegal, but price manipulation is wrong and illegal both when traders are buying and when they are short-selling—so this is not specific to short-selling (e.g., “pump and dump” is price manipulation on the long side). A particular regulatory concern is that bears short-sell a stock in order to push the price down and that the low price itself will kill the firm—i.e., short-selling kills a firm that would otherwise be in good shape. For instance, a low stock price could make it more difficult to issue shares or borrow. This concern is particularly relevant for bank stocks where the idea is that short-selling drives down the price, and this result creates a run on the bank, eventually leading to real troubles for the bank.

Ethics in Investment Banking
by John N. Reynolds and Edmund Newell
Published 8 Nov 2011

As neither (i) selling a share, nor (ii) being in a short position is in itself normally unethical, it is difficult to see the act of short-selling a share (or an index or a commodity) as intrinsically problematic from an ethical perspective, although this is not to say that shorting cannot be abusive for reasons already stated. It is likely that all major banks and investment banks participate in some of their activities either in short-selling or in facilitating short-selling. Short-selling: Market evidence Both the US and the UK implemented short-term bans on shortselling. Both bans were subsequently terminated. In September 2008, short-selling was seen as a contributing factor to undesirable market volatility in the US and subsequently was prohibited in the US by the SEC.

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These ethical problems are akin to unauthorised trading, in that they are clearly unethical, rather than being ethically more complex, as with short-selling. Short-selling At the time the financial crisis was unfolding, short-selling was presented by some politicians and parts of the media as one of the major “abuses” of the financial crisis. It was blamed by some banks and Governments for destroying, or attempting to destroy, (quoted) banks. As such, it is in a different position from other practices, in that it was not illegal in most jurisdictions at the time, although it had previously been subject to some ethical concerns. Recent Ethical Issues in Investment Banking 95 The ethical position of short-selling is straightforward: it is not, in itself, unethical.

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In February 2009, the FSA published a Discussion Paper on short-selling. This examined the arguments for and against restrictions on short-selling. It proposed a disclosure requirement for the short-selling of all stocks, not just those of financial services companies, using an initial disclosure threshold of 0.5 per cent of issued share capital.9 The FSA conclusions in the February 2009 Discussion Paper included observing that bid-ask spreads for stocks where the ban was implemented rose considerably more than for the market as a whole. Rising spreads indicated that the market was working less efficiently and therefore the short-selling ban would penalise both buyers and sellers.

Mathematics for Finance: An Introduction to Financial Engineering
by Marek Capinski and Tomasz Zastawniak
Published 6 Jul 2003

Example 5.12 (3 securities without short selling) For the same three securities as in Examples 5.10 and 5.11, Figure 5.8 shows what happens if no short selling is allowed. All portfolios without short selling are represented by the interior and boundary of the triangle on the w1 , w2 plane and by the shaded area with boundary on the σ, µ plane. The minimum variance line without short selling is shown as a bold line in both plots. For comparison, the minimum variance line with short selling is shown as a broken line. 114 Mathematics for Finance Figure 5.8 Portfolios without short selling Exercise 5.14 For portfolios constructed with and without short selling from the three securities in Exercise 5.12 compute the minimum variance line parametrised by the expected return and sketch it a) on the w2 , w3 plane and b) on the σ, µ plane.

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Exercise 4.5 Consider a market with a risk-free asset such that A(0) = 100, A(1) = 110, A(2) = 121 dollars and a risky asset, the price of which can follow three possible scenarios, Scenario ω1 ω2 ω3 S(0) 100 100 100 S(1) 120 120 90 S(2) 144 96 96 Is there an arbitrage opportunity if a) there are no restrictions on short selling, and b) no short selling of the risky asset is allowed? 4. Discrete Time Market Models 81 Exercise 4.6 Given the bond and stock prices in Exercise 4.5, is there an arbitrage strategy if short selling of stock is allowed, but the number of units of each asset in a portfolio must be an integer? Exercise 4.7 Given the bond and stock prices in Exercise 4.5, is there an arbitrage strategy if short selling of stock is allowed, but transaction costs of 5% of the transaction volume apply whenever stock is traded. 4.1.3 Application to the Binomial Tree Model We shall see that in the binomial tree model with several time steps Condition 3.2 is equivalent to the lack of arbitrage.

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For s ≥ s0 the variance σV is an increasing function of s, which means that σV > σ1 for every portfolio without short selling. The above corollary is important because it shows when it is possible to construct a portfolio with risk lower than that of any of its components. In case 1) this is possible without short selling. In case 3) this is also possible, but only if short selling is allowed. In case 2) it is impossible to construct such a portfolio. Example 5.9 Suppose that σ12 = 0.0041, σ22 = 0.0121, ρ12 = 0.9796. Clearly, σ1 < σ2 and σσ12 < ρ12 < 1, so this is case 3) in Corollary 5.6. Our task will be to find the portfolio with minimum risk with and without short selling. 106 Mathematics for Finance Using Theorem 5.5, we compute s0 ∼ = −1.1663, smin = 0.

The Payoff
by Jeff Connaughton

Two elderly ladies were standing nearby when he yelled that.” The pushback from the Blue Team was followed by pushback from The Blob. I received an e-mail from a lobbyist (and former Dodd staffer) who represented a large hedge fund well known for short selling. She warned me that it would be bad for my career if Ted and I went after short selling. She added that Ted and I looked like deranged conspiracy theorists for seeking to explore whether short selling had played a role in the downfall of firms like Lehman Brothers. Let me be clear: The Blob isn’t the mob. I didn’t fear for my kneecaps. But the hedge fund lobbyist was clearly trying to get me to back down by making me wonder whether not backing down would harm my career.

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We wanted to learn about the status of its investigation into naked short selling of the stock of Bear Stearns and Lehman. At the briefing, SEC lawyers told us we’d have to be patient and that the investigation would take at least another year. They added that they couldn’t give us any details of the investigation but warned us that it’s almost impossible to prove intent under the current rule (that is, the reasonable-belief standard). Under this rule, anyone accused of naked short selling can simply say: “I reasonably believed I could find the stock in time.” In essence, the SEC lawyers confirmed our view that the rule against naked short selling was unenforceable and that they knew it.

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Selling a stock without intending to locate it in time for settlement is naked short selling. It amounts to selling shares that don’t exist, which increases the supply of a stock in a way that can push its price down. Since the Depression, the SEC had required short sellers to wait for an uptick in price before selling short. Forcing short sellers to wait for the price to tick up before they sell more shares gives a breather to a stock in rapid decline and helps prevent bear raids, which are essentially attacks on a stock (typically by hedge funds) with the aim of driving down its price to ensure that their short selling is profitable. The uptick rule was in force for nearly seventy years.

Beat the Market
by Edward Thorp
Published 15 Oct 1967

Short Squeezes From the legendary bear raids of the early Wall Street buccaneers many have drawn the moral that short selling is bad. Some say short selling is dangerous because of unlimited potential losses, and that in return it offers only limited potential gains. (Appendix A shows this need not be so.) Some say selling short is unpatriotic; it means the seller has a pessimistic view of American enterprise. This is naïve and untrue. The interests of the economy are best served if stock prices reflect potential future earnings. If informed short selling guides prices to such levels, then short selling may even be called a public duty. We shall not pursue this argument.

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What is a warrant? Get rich quick? The warrant-stock diagram. The two basic rules relating warrant prices to stock prices. Adjusted warrants and adjusted exercise price. Reading the financial pages. Checking the two rules. The warrant-stock law: predictability in the stock market. 3 SHORT SELLING: PROFITS IN BAD TIMES 33 Short selling. Selling warrants short. Molybdenum warrants and the avalanche effect. 4 THE BASIC SYSTEM Hedging: high profit with low risk. Changing the mix. Deeper insight into the basic system. The basic system: preview. An incredible meeting. 43 vi Contents 5 THE SYSTEM IN ACTION: $100,000 DOUBLES 51 The Molybdenum story.

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I sought “cheap” warrants that might advance dramatically in price. None seemed attractive at the time. Molybdenum seemed to be the most overpriced warrant of all. I wanted to sell the Molybdenum warrants short, which is a method for profiting from a fall in price. (Short selling is explained in Chapter 3.) The Wall Street mythology characterizes short selling as both dangerous and subversive, so I hesitated. Besides, I would lose if the common rose substantially and the warrant consequently advanced. The Moment of Discovery One evening as I studied my charts of the possible price relationships between the Molybdenum warrant and common stock, I realized that an investment could be made that seemed to insure tremendous profit whether the common rose dramatically or became worthless.

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

We know because there have been numerous short-selling bans in history, either on individual stocks or on entire stock markets that were dropping. At the height of the financial crisis, the SEC banned short selling on hundreds of financial firms to, in the words of Chairman Christopher Cox, “protect the integrity and quality of the securities market and strengthen investor confidence.” A study by the Federal Reserve Bank of New York found that the ban did the opposite. Prices fell sharply while it was in place and stabilized when it was over. Affected stocks actually did worse than those for which short selling was allowed.

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Affected stocks actually did worse than those for which short selling was allowed. The same effect was seen following a short-selling ban in 2011 after the US had its credit rating cut by Standard & Poor’s, and stocks fell sharply. More recently, some European countries decided to ban short selling when markets initially plunged in the wake of the COVID-19 pandemic’s arrival. A study by a group of fund management bodies and exchanges showed that stocks in countries without short-selling bans performed better.[10] Short People Have Reason to Live Short sellers make it cheaper and easier for everyone to trade. They also aid in price discovery, stopping bubbles from forming as easily.

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People like Chanos and Left are something of a dying breed on Wall Street. Hedge funds with a dedicated short-selling approach had seen their assets under management drop from more than $22 billion in 2018 to less than half as much by 2020, according to Eurekahedge. To put that into perspective, hedge funds overall had about $3.8 trillion in assets by the end of that year. Of course, tallying up funds that do nothing else but bet against stocks vastly understates the general level of short selling. Melvin Capital alone had more than $13 billion under management at the start of the year and, like many hedge funds, was long overall while engaging in the practice.

Stock Market Wizards: Interviews With America's Top Stock Traders
by Jack D. Schwager
Published 1 Jan 2001

Another obstacle faced by shorts is that positions can be implemented only on an uptick (when the stock trades up from its last sale price)—a rule that can cause a trade to be executed at a much worse price that the prevailing market price when the order was entered. 59. The Why of Short Selling With all the disadvantages of short selling, it would appear reasonable to conclude that it is foolhardy to ever go short. Reasonable, but wrong. As proof, consider this amazing fact: thirteen of the fourteen traders interviewed in this book incorporate short selling! (The only exception is Lescarbeau.) Obviously, there must be some very compelling reason for short selling. The key to understanding the raison d'etre for short selling is to view these trades within the context of the total portfolio rather than as standalone transactions.

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It should now be clear why so many of the traders interviewed supplement their long positions with short trades: It allows them to increase their return/risk levels (lower risk, or higher return, or some combination of the two). If short selling can help reduce portfolio risk, why is it so often considered to be exactly the opposite: a high-risk endeavor? Two reasons. First, short trades are often naively viewed as independent transactions rather than seen in the context of the total portfolio. Second, the open-ended loss exposure of short positions can indeed lead to enormous risk. Fortunately, however, this risk can be controlled, which brings us to our next point. 60. The One Indispensable Rule for Short Selling Although short selling will tend to reduce portfolio risk, any individual short position is subject to losses far beyond the original capital commitment.

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Why fight a trend measured in decades, if not centuries? The point is that a short-selling approach is normally not intended as a stand-alone investment; rather, it is intended to be combined with long investments (to which it is inversely correlated) to yield a total portfolio with a better return/risk performance. Most, if not all, of Galante's investors use her fund to balance their long stock investments. Apparently, enough investors have recognized the value of Galante's relative performance so that her fund, Miramar Asset Management, is closed to new investment. Most people don't realize that a short-selling strategy that earns more than borrowing costs can be combined with a passive investment, such as an index fund or long index futures, to create a net investment that has both a higher return than the index and much lower risk.

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

Under decimalization, an uptick of a mere penny would allow short-selling to begin. The rule had become obsolete, in Cox’s estimation. The creators of inverse exchange-traded funds, which increased in value as the market dropped, added that the uptick rule had interfered with the returns on their new, popular products. As soon as the rule disappeared, traders began engaging in a practice known as “naked” short selling, where speculators sold short stocks they didn’t physically possess. Actual shares are supposed to be borrowed from other investors in a short-selling transaction and returned when the short seller closes out his position with a purchase, but some investors were bending the rules.

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Not only was Cox too hands off, in Kaufman’s estimation, he had sinned by dismantling a regulation that had been put in place as a public safeguard following the Great Depression. “I was just horrified at a whole series of things that they had done. One of them was their treatment of short selling. There’s nothing wrong with short selling. I’ve done it myself,” he said. But he was appalled that Cox had done away with the uptick rule, which made it more difficult to sell stocks short—and thus drive down prices when the market was in a free fall. Cox and the commission had eliminated the Depression-era Uptick Rule in 2007, arguing that the regulation had been ineffective since 2001 when the stock market under pressure from President Bill Clinton’s SEC Chairman Arthur Levitt had shifted from trading in eighths (12.5 cents) and sixteenths (6.25 cents) to decimals (1 cent).

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The SEC never tested the elimination of the Uptick Rule during the market sentiments that derived the origination of the Uptick Rule in the first place—the bear market.” Instead of reinstituting the rule, however, the SEC opted for a temporary ban in short selling of 799 financial stocks. Members of Congress wanted to prevent short sellers from driving down the stock prices of weak banks that were beneficiaries of federal bailout dollars. In October 2009, when the ban expired, program traders again engaged in naked short selling. In fact, the market plunged the day after the temporary ban was lifted. Connaughton came up with an idea for Kaufman to have a voice in reforming Wall Street even though he wasn’t a member of the Banking Committee: He convinced Kaufman to pretend that he was a member over the next two years.

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

If the speculator does not own the asset, they can speculate for the fall by short selling: borrowing the asset, selling it, buying it back later for a lower price, then returning it to the lender. The short seller is hoping that the asset’s price will fall in the intervening period so that they can make a profit from the trade. In practice, however, short selling is often much more difficult and risky than simply buying an asset. When an investor buys a stock, the potential losses are limited, but the potential gains are unlimited; when an investor short sells a stock, the opposite is true. Short selling even the 7 BOOM AND BUST most clearly overvalued asset can thus completely ruin an investor if its price continues to rise.

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Short selling even the 7 BOOM AND BUST most clearly overvalued asset can thus completely ruin an investor if its price continues to rise. Often there are legal or regulatory restrictions on short selling, coupled with social opprobrium against short sellers. At other times it can be extremely expensive to borrow the asset in the first instance.24 In less regulated markets, short selling can leave investors exposed to market manipulators who engineer corners on the short-sold stock.25 What is the spark that sets the bubble fire ablaze? Economic models of bubbles struggle to explain when and why bubbles start – according to Vernon Smith, a Nobel Laureate, the sparks that initiate bubbles are a mystery.26 In this book, we argue that the spark can come from two sources: technological innovation, or government policy.

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There were no particular legal restrictions on forward contracts, so investors could simply enter an agreement to sell shares at today’s price in a few months and wait for the price to fall before buying those shares. However, it seems unlikely for two reasons that short selling South Sea shares was a viable alternative for informed investors. First, there was a risk of share prices rising further before the contract became due. The Whitehall Evening Post reported, in March 1720, of a Jewish stockbroker who lost £100,000 in this way.59 Second, as previously noted, the Mississippi Company and South Sea Company both had some control over the supply of their own shares. Short selling on a scale significant enough to affect prices would probably have been seen as an attack on the company, which could respond with a corner – buying large numbers of their own shares to drive up prices, possibly even forcing the short seller to purchase shares from the company to fulfil the forward contract.

Hedgehogging
by Barton Biggs
Published 3 Jan 2005

HG4530.B516 2006 332.64′5—dc22 2005026139 Printed in the United States of America. 10 9 8 7 6 5 4 3 2 1 ftoc.qxd 12/5/05 4:29 PM Page v CONTENTS Introduction CHAPTER ix ONE The Triangle Investment Club Dinner: Hacking Through the Hedgehog Jungle CHAPTER TWO The New Hedgehogs May Have Been Golden Boys, but They Still Bleed Red CHAPTER 63 SEVEN The Run-Up and Haunted by Remembrances and Doubt CHAPTER 46 SIX The Roadshow Grind: Blood, Sweat, Toil, and Tears CHAPTER 34 FIVE The Odyssey of Starting a Hedge Fund: A Desperate, Frantic Adventure CHAPTER 21 FOUR Short Selling Is Not for Sissies CHAPTER 9 THREE Short Selling Oil: The Crude Joke Was on Us CHAPTER 1 80 EIGHT Hedgehogs Come in All Sizes and Shapes 95 v ftoc.qxd 12/5/05 4:29 PM Page vi vi CHAPTER CONTENTS NINE The Violence of Secular Market Cycles CHAPTER TEN The Battle for Investment Survival: Only Egotists or Fools Try to Pick Tops and Bottoms CHAPTER 239 EIGHTEEN The Trouble with Being Big CHAPTER 219 SEVENTEEN Three Investment Religions: Growth, Value, and Agnostic CHAPTER 204 SIXTEEN Once You Have a Fortune, How Can You Hang On to It?

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Shorting indexes is passive, they concede, but shorting individual issues or sectors is hazardous. 21 ccc_biggs_ch03_21-33.qxd 22 11/29/05 6:58 AM Page 22 HEDGEHOGGING Nevertheless, specific short selling has its appeal.There are far fewer short sellers than there are long investors, so the short space theoretically should be less populated and, therefore, more inefficient.This is intellectually attractive to those investors who relish being different. Another reason that the short space is less inhabited is that it is temperamentally stressful; being short something always leaves the seller with an uneasy, queasy feeling. The old saw, “He that sells what isn’t his’n must give it back or go to prison,” echoes back across the centuries. However, short selling appeals to the contrarian instincts of investors, especially those with a skeptical and sardonic view of the innate intelligence of humankind.Thus, the practice endures, but with a relatively high number of casualties.

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FIGURE 3.2 Oil Prices, January 1, 2004 to October 22, 2004 WTI Crude Oil 60 60 55 55 50 50 45 45 40 40 35 35 30 2 9 16 23 30 Jan 6 13 20 27 Feb 5 Source: Global Insight 12 19 26 Mar 2 9 16 23 30 Apr 7 14 21 23 4 May 2004 11 18 25 Jun 2 9 16 23 30 Jul 6 13 20 27 Aug 3 10 17 24 Sep 1 8 15 22 30 Oct ccc_biggs_ch03_21-33.qxd 11/29/05 6:58 AM Page 31 Short-Selling Oil 31 WHAT I LEARNED FROM THE EARLY 1900 S : THE MARKET HASN’T CHANGED THAT MUCH While we were being tortured by our crude short, various people attempted to give me succor of one type or another. Guys I know who are professional commodity traders effusively offered advice, most of which was to buy strength and sell weakness, in other words to go with the flow. They unabashedly told me their short-selling trading tactic invariably was “Don’t fight a losing position. If it doesn’t show you a profit, cover it.”

A Mathematician Plays the Stock Market
by John Allen Paulos
Published 1 Jan 2003

Instead of buying, touting, and selling on the jump in price, shorters and distorters sell, lambast, and buy on the decline in price. They first short-sell the stock in question. As mentioned, that is the practice of selling shares one doesn’t own in the hope that the price of the shares will decline when it comes time to pay the broker for the borrowed shares. (Short-selling is perfectly legal and also serves a useful purpose in maintaining markets and limiting risk.) After short-selling the stock, the scamsters lambast it in a misleading hyperbolical way (that is, distort its prospects). They spread false rumors of writedowns, unsecured debts, technology problems, employee morale, legal proceedings.

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It’s only when the option holders do something to directly affect the value of the options that the lure of leverage turns lurid. Short-Selling, Margin Buying, and Familial Finances An old Wall Street couplet says, “He who sells what isn’t his’n must buy it back or go to prison.” The lines allude to “short-selling,” the selling of stocks one doesn’t own in the hope that the price will decline and one can buy the shares back at a lower price in the future. The practice is very risky because the price might rise precipitously in the interim, but many frown upon short-selling for another reason. They consider it hostile or anti-social to bet that a stock will decline.

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A simple example, however, suggests that short-selling can be a necessary corrective to the sometimes overly optimistic bias of the market. Imagine that a group of investors has a variety of attitudes to the stock of company X, ranging from a very bearish 1 through a neutral 5 or 6 to a very bullish 10. In general, who is going to buy the stock? It will generally be those whose evaluations are in the 7 to 10 range. Their average valuation will be, let’s assume, 8 or 9. But if those investors in the 1 to 4 range who are quite dubious of the stock were as likely to short sell X as those in the 7 to 10 range were to buy it, then the average valuation might be a more realistic 5 or 6.

The Alpha Masters: Unlocking the Genius of the World's Top Hedge Funds
by Maneet Ahuja , Myron Scholes and Mohamed El-Erian
Published 29 May 2012

“We’re looking for people that love to do research.” The Secret Sauce of Short-Selling First, some basics about short-selling. It’s a tough business. In bull markets, where a rising tide lifts even the weakest performers to high valuation levels, shorts must be right more often than they are wrong. The stocks may be hard to borrow. Governments have been imposing restraints and bans on certain short-selling activity, using short-sellers as scapegoats for the implosion of investment banks and sovereign debt woes. While a percentage of short-selling is directional, meaning the investor has an adverse view of a company’s valuation based on an analysis of its financial statements or a sector outlook and hopes to profit when the stock falls or the sector weakens, hedging is another reason.

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Along the way, Loeb made a name for himself in single-name short-selling, finding both value plays and specializing in what he calls the “Three Fs: fads, frauds, and failures.” As the tech bubble burst, Loeb was correctly positioned short and made a killing. In 2000, he beat the Standard & Poor’s (S&P) by 26.2 percent. In 2001, he beat the S&P by 26.8 percent. Today, Third Point has a dedicated team of short sellers who consistently generate alpha regardless of market conditions. Unlike many hedge funds that use shorting only as a method of hedging, Loeb instills the discipline of the art of alpha-generating short-selling in each of his team members and this approach has given the firm an important means of profit making throughout the years.

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Contents Foreword: The Less Mysterious World of Hedge Funds Preface Disclaimer Chapter 1: The Global Macro Maven The Makings of a Maven Coming of Age through a Crisis Building Bridgewater Winning Over the World Bank Belly Up: Learning from the Bad Calculating Crises Foreseeing the Financial Crisis Extracting Alpha Bringing Home the Alpha Fund in Focus Procuring the Principles Watchful Eye on the World Today Going After What You Want Chapter 2: Man versus Machine Tim Wong: The Engineer Pierre Lagrange: The Money Maker Chapter 3: The Risk Arbitrageur The Making of a Risk Arbitrageur It’s Not All Numbers The Stuff of Legends Knowing What You Don’t Know “I’m Sort of an Independent Person” The Greatest Trade Ever Mispriced Risk: Dow/Rohm & Haas Jumping into the Deep End: Citigroup Good as Gold A Little Help from His Friends Fighting Back Chapter 4: Distressed Debt’s Value Seekers The Auto Bailout Brother-and-Sister Partnership Catching the Eye of Robert Bass Killer Combination Detecting Diamonds in the Rough Extracting the Value Chapter 5: The Fearless First Mover Gearing Up at Goldman Pulling in the Profits “A” for Appaloosa The Early Days No “A’s” in High School Learning and Earning Fierce and Fearless Titanic Track Record International Intrigue Russian Roulette Bullish on Bankruptcies Delphi Dilemma WaMu Winner The Force Behind Financials The ABC’s: AIG, BAC, and C Sizing Up the Sweet Spot Chapter 6: The Activist Answer Bright Beginnings Getting Gotham Going The School of Rock Making a Name for Himself Return on Invested Brain Damage Buying the Farm Rising from the Ashes Fast Food, Building Record Results Making Cents at McDonald’s Borders and Target: A Couple of Clunkers Zeroing in on Target MBIA A Dud The Greatest Trade A Penney for His Thoughts Canadian Pacific on the Rails What Makes an Activist Chapter 7: The Poison Pen The Young Whippersnapper Finds His Way Catching the Big Wave in the Storm Evolution and Revolution The Third Point Tao and Team Approach Chapter 8: The Cynical Sleuth Cause for Cynicism The Contrarian Investor The Secret Sauce of Short-Selling Defending an Investment Strategy China’s Coming Crisis Back to Business School Basics Chapter 9: The Derivatives Pioneer The Rise of a Trailblazer “Lehman Weekend” at the Fed The Technicalities of the Trade Afterword Appendix References Acknowledgments About the Author Index Copyright © 2012 by Maneet Ahuja.

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

The surest sign of Wall Street’s unease was the prickliness with which Fuld and Russo, along with executives at other banks, responded to the phenomenon of short-sellers—hedge funds and others who were betting against their stocks. Short-selling is a legal and also a justifiable feature of markets, allowing traders to register negative as well as positive convictions. Indeed, Wall Street firms had been active promoters of short-selling, so long as the stocks being shorted were not their own. Now those same CEOs were haranguing the SEC, demanding a crackdown. In the CEOs’ defense, they had just seen Bear all but die, and the shorts’ campaigns against the other Wall Street firms—especially Lehman—had the same predatory edge.

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He protested to Jamie Dimon that JPMorgan was stealing his hedge fund clients; he made similar calls to swaps dealers. On the same Wednesday, he called Chris Cox at the SEC, as well as the two New York senators, Hillary Clinton and Charles Schumer, to demand that the SEC intervene against short-selling. He rang Lloyd Blankfein, who had maintained only a few days earlier that curbs on short-selling weren’t needed. Now, with Goldman’s stock plunging 14 percent on Wednesday, and his firm also suffering a degree of asset flight, Blankfein joined the lobbying campaign. Both banks also raised with Geithner the idea of converting to a commercial bank—another strategy once floated by Lehman.

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The war with hedge funds was Wall Street’s war with itself, a revolt against a financing stratagem that the banks had conceived and long exploited. After the meeting, Roach made a scheduled presentation to Julian Robertson, the legendary founder of Tiger Management. Robertson was livid over Mack’s drive to curtail short-selling. The courtly North Carolinian (born in Salisbury, a half-hour’s drive from what was to be Mack’s hometown) fumed at Roach: “Do you know a man named John Mack? Well you tell him his campaign against short-selling is going to cost him the goose that laid the golden egg. The hedge fund industry produced the revenues that drove Morgan Stanley’s prime brokerage business.” Roach coolly replied, “Correct me if I’m wrong, but in the stock market crash of 1987, a lot of hedge funds, including Tiger, had liquidity problems.

The Little Book of Hedge Funds
by Anthony Scaramucci
Published 30 Apr 2012

As such, he is credited with having changed the entity from a general partnership to a limited partnership and having put on the hedge fund cloak of mystery. Short Selling + Leverage Perhaps most important, Jones’ most profound influence on the hedge fund industry is his alternative and contrarian strategy of using short selling + leverage to achieve profits regardless of market conditions. Often referred to as the redheaded stepchild, short selling, which involves speculating on the prospect of corporate failure was seen as un-American in 1950. And yet, Jones embraced this “little known procedure that scares away users for no good reason” and viewed it as “speculative means for conservative ends.”

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This practice has become harder and harder to operate as government intervention in markets is making it harder for these sorts of managers to demonstrate their prowess. What Is Short Selling? As discussed in the beginning of this Little Book, one of the core features that defines hedge funds is short selling. Traditionally, money managers and investors take long positions in a stock, that is, they buy (hopefully undervalued) stocks with the expectation that the stock will increase in value. In simplistic terms, here’s how it works: Analyze a company, develop a predictive model on future cash flow streams, and then buy the stocks that you think are undervalued based upon the fundamentals of their future. Short selling is a completely different beast.

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Investment Strategies: The Long and the Short of It As an alternative investment, hedge funds are able to operate in almost any type of market and use almost any type of investment strategy. Although the New York Times once referred to hedge funds’ use of these instruments as “exotic and risky,” it should be noted that most financial institutions use these “exotic” instruments . . . albeit in different capacities. Short Selling Generally, mutual fund managers are only able to hold “long” positions—in other words, they buy a security, such as a stock, bond, or any other money-market instrument, with the expectation that the asset will appreciate in value. They load up on “hot” stocks when the market is expected to go up and then sell these hot stocks when the market is expected to go down.

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

Rothbard, America's Great Depression, pp. 219, 241. 29. Staley, Art of Short Selling, p. 247. 30. New York Times, "Shortselling." 31. Tsang, "Short Sellers under Fire." 32. Sorkin, "As No-Short-Selling List Grows." JMP Securities also asked to be struck from the list. 33. The Economist, "Shifting the Balance." 34. Lejland, "Finansravarna" (quotation translated). 35. Chanos, "Short Sellers Keep the Markets Honest"; Tsang, "Short Sellers under Fire." 36. Donovan, "Investment Bankers of the World, Unite!" 37. Oakley, "Short-Selling Ban Has Minimal Effect." 38. Younglai, "SEC's Cox Regrets Short-Selling Ban." 39. Nocera, "Alarm Led to Action." 40.

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Solomon, Deborah, and David Enrich. "Devil Is in Bailout's Details." Wall Street Journal, October 15, 2008. Sorkin, Andrew Ross, ed. "As No-Short-Selling List Grows, Another Firm Chooses to Leave." Dealbook blog/New York Times, September 23, 2008. http://deal book.blogs.nytimes.com/2008/09/23 /as-no-short-selling-list-grows-another-firm- chooses-to-leave/?pagemode =print. Stafford, Philip. "Traders Blind to Mounting Worries." Financial Times, September 19, 2007. Staley, Kathryn. The Art of Short Selling. New York: John Wiley & Sons, 1997 Stelzer, Irwin M. "Do Deficits Matter?" Weekly Standard, February 15, 2005. Stevenson, Richard.

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The administration and the Fed had recently given out improvised electric shocks to get the economy beating again, but to no avail. Bernanke and Paulson now felt an overall approach was necessary. The program that they proposed to Congress-and that its leaders now quickly endorsed-was intended as a defibrillator working at maximum power. They wanted the government to guarantee the money-market funds and to ban the shorting (selling stocks you do not own) of shares in financial companies, and above all, they wanted $700 billion. The largest bailout package in history would enable the treasury secretary to buy bad mortgages from the banks, so that the markets would regain confidence in them and they would be able to start circulating again.

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

Jones felt that one of the flaws of conventional long-only investing was that it made it difficult for investors to hold on to their positions through steep market corrections. He saw that short selling could be used as a risk control tool. Jones referred to short selling as a “speculative technique for conservative ends.” For Jones, the attractiveness of short selling was not the potential gains it provided from stock market declines, but rather its role as a market hedge that made it more feasible to hold on to and profit from good long positions, since the short positions provided the investor with some protection on market declines. Jones’s ability to grasp that when used to counterbalance long positions, short selling was a risk-reducing rather than speculative tool demonstrated remarkable insight for a financial novice.

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Jones’s ability to grasp that when used to counterbalance long positions, short selling was a risk-reducing rather than speculative tool demonstrated remarkable insight for a financial novice. Although short selling was an essential component of Jones’s strategy, he felt that short trades were inherently inferior to long trades for many reasons. These reasons included the inability to get long-term gains on short trades, the necessity of paying dividends while holding shorts, the restriction of not being able to go short except on an uptick, and the paucity of research on short-selling ideas because of Wall Street’s almost exclusive focus on buy recommendations. For these reasons, Jones clearly preferred the long side, but his short trades were useful as an aid in profiting from his long positions.

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For these reasons, Jones clearly preferred the long side, but his short trades were useful as an aid in profiting from his long positions. In a report Jones wrote to investors, he took aim at the prevailing notion that short selling was somehow “immoral or antisocial”—some things never change. Jones called this perspective “an illusion.” As Jones explained, “The successful short seller is performing a useful market function in that he arrests an unjustified market rise in a stock by selling it, and then later cushions its fall by buying it back, thus moderating its fluctuations.” Jones’s use of short selling to offset the risk of long positions gave him the ammunition to increase the magnitude of his long position vis-à-vis what it would have been without the short hedge, while still reducing the risk on balance.

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

Of course, the calculations work only if the investors pick good stocks; a poor stock picker could have his incompetence magnified under Jones’s arrangement. Still, given the advantages of the hedged format, the question was why other fund managers failed to emulate it. The answer began with short selling, which, as Jones observed in his report to investors, was “a little known procedure that scares away users for no good reason.”30 A stigma had attached to short selling ever since the crash and was to survive years into the future; amid the panic of 2008, regulators slapped restrictions on the practice. But as Jones patiently explained, the successful short seller performs a socially useful contrarian function: By selling stocks that rise higher than seems justified, he can dampen bubbles as they emerge; by repurchasing the same stocks later as they fall, he can provide a soft landing.

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Duff did nothing about it, because he was working for a conventional pension fund at the time; but when he joined Tiger in 1989, he persuaded Robertson to short the company. Within a year, Prime Motor Inns fell from $28 to $1, demonstrating how profitable short selling could be. Robertson had an arrow in his quiver that conventional funds lacked. “It’s me and the patsies,” he once told an associate.19 But Tiger’s defiance of efficient-market presumptions cannot be explained entirely by short selling. In most years Robertson would have beaten the market even without the profits from his shorts, suggesting that he had an edge precisely where the theory said no edge was possible: in traditional stock buying.

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As their stock prices cratered on Wednesday, the two firms worked the phones; and by the end of the day, both New York senators, Chuck Schumer and Hillary Clinton, were calling on the Securities and Exchange Commission to give Morgan and Goldman the short-selling ban that they demanded. On Thursday SEC chairman Christopher Cox expressed doubts about helping the bankers, but he found himself alone. “You have to save them now or they’ll be gone while you’re still thinking about it,” insisted the Treasury secretary Hank Paulson.29 At around 1:00 P.M., the Financial Services Authority in London announced a thirty-day ban on short selling of twenty-nine financial firms, signaling that the authorities would now do whatever it might take to save flagship companies.

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

Consider the case of a financially stressed company that wants to raise capital. Many investors will be willing to buy its IOUs on the basis that they will hedge the risk of holding the debt by taking an offsetting short position in the company’s shares. If the company runs into trouble, the profit on the short-selling transaction will offset the losses on the debt. That would strike many people as morally acceptable. And most short selling, incidentally, consists of arbitrage trades like this rather than straight bets on companies performing badly. Yet it arouses passionate (and selective) criticism. The same people who are delighted if short sellers in the oil market bring down the price of oil will criticise those who go short of shares in an oil company.

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That fundamental point has, incidentally, been well understood by great novelists. The dramatic dénouement of Zola’s late nineteenth-century work L’Argent consists of a short-selling operation in which a brilliant financier realises that a rival’s bank is fraudulent, and brings about its demise. While Zola was anxious to convey the financial sleaze and corruption of the French Second Empire and to emphasise the terrible effects of speculation on ordinary people, he nonetheless showed how short selling could uncover the unpalatable truth. Milton Friedman, economist and great propagandist for free market capitalism, argued that speculation was a stabilising influence in markets generally.

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Dodd–Frank makes Glass–Steagall look like throat-clearing. The situation in Europe, while different in detail, is similar in substance. Since the crisis, more than a dozen European regulatory directives or regulations have been initiated, or reviewed, covering capital requirements, crisis management, deposit guarantees, short-selling, market abuse, investment funds, alternative investments, venture capital, OTC derivatives, markets in financial instruments, insurance, auditing and credit ratings. These are at various stages of completion. So far, they cover over 2,000 pages. That total is set to increase dramatically as primary legislation is translated into detailed rule writing.

Risk Management in Trading
by Davis Edwards
Published 10 Jul 2014

As a result, it is common for traders to use resources that can help them find trading partners and sign standardized trading contracts. (See Table 1.2, Types of Trading Venues.) KEY CONCEPT: REGULATIONS AROUND SHORT SELLING Many countries and markets have restrictions on short selling. In those markets, specific actions, those designated as “short selling,” might have regulatory and compliance implications. Depending on how the regulations are written, there may be little relationship between “short selling” as a trading concept and “short selling” as a regulatory concept. 17 Trading and Hedge Funds TABLE 1.2 Types of Trading Venues Bilateral Broker Dealer Exchange Traders directly find one another.

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A substantial loss of value might be defined as 10 percent. The ability to define standard products which can be interchanged with one another (these are called fungible products) Other markets also allow short selling. In the stock market, short selling is made possible by borrowing shares and agreeing to repay them at some point in the future. If done for purely speculative purposes, short selling is a way of betting that prices will decline over time. However, short selling can be used for a variety of other purposes. For example, a broker might short a stock to allow a customer to make an immediate transaction. The broker would then have to purchase in a later transaction.

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Shortingg is making a trade that benefits the trader when the price of an asset falls. This can be done by borrowing an asset from another trader and selling it (called short selling g) or by entering 8 RISK MANAGEMENT IN TRADING into a derivative contract (like an agreement to sell an asset expected to be owned in the future at a fixed price). Relative value strategies are often market neutrall. By taking offsetting positions in related assets, the impact of the broader market move is mostly eliminated. For example, a trader might identify two bank stocks. By buying one stock and short selling the other, the trader will benefit if the long stock position (the stock that has been purchased) outperforms the short position (the stock that has been sold short).

Dead Companies Walking
by Scott Fearon
Published 10 Nov 2014

While most of my fund’s investments are in the stocks of companies I believe are undervalued, I also look for stocks that are overvalued by the markets. My specialty is identifying what I call “dead companies walking”—businesses on their way to bankruptcy and a zeroed-out share price. To the noninvestor, earning money on losing stocks might sound counterintuitive. But short selling is a routine, if widely misunderstood, investment strategy. And while it may seem macabre to profit on the misfortunes of others, investors like me make our markets stronger and more efficient. We Americans like to think we have the greatest economy in the history of the world. And we do.

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There were roughly eleven million common shares of the company. By the time his spree came to an end, this guy had acquired more than two million of them—just in time for the final bankruptcy settlement to wipe out every cent of value they had. How I Make Money on Falling Stocks The mechanics of short selling are relatively simple. My prime broker borrows a certain number of shares in a company on my behalf. My fund then sells these borrowed shares at the current market price. Normally, at some point in the future, I would be obligated to purchase that number of shares so that I can “cover” my position.

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If you buy a stock selling at $10, the most you can possibly lose is $10. If you short that same stock, however, and it winds up being the next Apple or Exxon or Berkshire Hathaway, you stand to lose a whole lot more if you don’t cover in time. Ideally, I don’t have to worry about covering my positions at all. That’s because, unlike most other short-selling investors out there, I don’t seek out stocks I think are just going to dip a little bit in the near term (as I did with my very first short of TGI Fridays). I look for genuine failures, companies like Cal Coastal, that seem destined for one outcome: bankruptcy and a zeroed-out stock price. Neither the analyst nor the fund manager was up to anything underhanded or crooked.

On the Brink: Inside the Race to Stop the Collapse of the Global Financial System
by Henry M. Paulson
Published 15 Sep 2010

Chris was considering various steps the SEC could take, including a temporary ban on short selling, but his board was divided. He wanted Tim, Ben, and me to support him on the need for a ban. The short-selling debate was another of those issues where I found myself forced to do the opposite of what I had believed for my entire career. Short selling is a crucial element in price discovery and transparency—after all, David Einhorn, the hedge fund manager who shorted Lehman, had ultimately been proved right. I had long compared banning short selling to burning books, but now I recognized short selling as a big problem. I concluded that even though an outright ban would lead to all sorts of unintended consequences, it couldn’t be worse than what we were experiencing just then.

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His cash reserves were evaporating, and he was doing everything he could to hold things together. “Hank,” John said, “the SEC needs to act before the short sellers destroy Morgan Stanley.” Since Monday he had been calling senators, congressmen, the White House, and me, trying to persuade everyone to push the SEC to do something about abusive short selling. He wasn’t alone. John Thain also called that afternoon to press about short selling. Shareholders had not yet approved Merrill’s deal with Bank of America, and he was taking nothing for granted. But his immediate concern was Morgan Stanley. The failure of another major institution, he knew, would be devastating. Ben and I had arranged to meet with congressional leaders that evening, but first Tim and I had to call AIG chief Bob Willumstad to confirm that the Fed was on track to make the loan—and to tell him that he was being replaced.

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Coming from Bob, always calm and levelheaded, this was an alarming message. I alerted Tim Geithner and then called Chris Cox to urge him again to do something to end abusive short selling. I had been pressing Chris with increasing intensity since Monday. We’d spoken seven times Wednesday and would speak just as frequently Thursday on the subject. I implored him not to sit idly by while our financial system was destroyed by speculators. Any other time, I would have argued strongly against a ban, but my reasoning now was pragmatic: our short-selling rules hadn’t been written for these conditions, and whatever we chose to do couldn’t be worse than the panic we were now seeing.

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

bern_c10.qxd 3/23/07 9:07 AM Page 143 Barclays Global Investors 143 The biggest step forward was the introduction of long/short strategies in 1996, promoted by a few people on the staff who were big believers. This approach—an aggressive idea without much acceptance at the time—appeared to BGI to be a more efficient way to manage money than under long-only conditions. Short-selling offered a major increase in Breadth, and therefore in the critically important Information Ratio, because selling stocks short instead of just buying them doubled the opportunities to put return forecasts to good use. Short-selling turned out to be even more effective in fixed-income management. With stocks, the upside may be infinite and the downside may be zero, but as a practical matter the upside and downside are roughly equal.

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In my experience as a money manager in the late 1960s and as a consultant and observer since then, bubbles are more often made by clients than by managers, because it is scary for a manager to remain steadfast when long-time clients start walking out the door. Only the most toughminded can resist that kind of pressure.  And what of the future? Grossman believes much has been learned from the experience with the bubble. The terrible losses incurred in the crash made short-selling appear much more respectable. On the other hand, short-selling and the rapid growth of the hedge fund universe are making the market more efficiently priced as mispricings disappear bern_c10.qxd 3/23/07 9:07 AM Page 147 Barclays Global Investors 147 more rapidly. So the market is even more difficult to beat than it was in the first place.

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Alpha and beta—once upon a time the unpalatable language of the Capital Asset Pricing Model—have become critical ingredients of the most sophisticated forms of portfolio management and investment performance measurement. New portfolio structures, most notably in the form of hedge funds and the increasing acceptance of short-selling, are increasingly important, but all of them have deep roots in Capital Ideas. Finally, the proliferation of products, strategies, and innovation stemming from the options pricing model—what Eugene Fama has called “the biggest idea in economics of the century”—has been explosive, and may still have a long way to go.6 As just one example, the total notional amount of derivatives outstanding at the end of 2006 was $370 trillion, a number to make one’s head spin.*  The book begins by facing up front the attack on Capital Ideas by the proponents of Behavioral Finance—and especially on the idea of the Efficient Market Hypothesis.

The Wisdom of Crowds
by James Surowiecki
Published 1 Jan 2004

And when bettors were wrong, they would be really wrong. The same is true of the stock market. Limiting short selling increases the chance that prices will be off, but what it really increases is the chance that if the price of a stock gets out of whack, it will get really out of whack. Internet stocks, for instance, were almost impossible to short, and that may have something to do with why their prices went into orbit. Short selling isn’t one of the “great commercial evils of the day.” The lack of short selling is. II Chanos’s assertion that one reason why there isn’t more short selling is that most people are not psychologically built to endure constant scorn struck me, when I first heard it, as correct.

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In fact, short sellers have been the target of investor and government anger since at least the seventeenth century. Napoleon deemed the short seller “an enemy of the state.” Short selling was illegal in New York State in the early 1800s, while England banned it outright in 1733 and did not make it legal again until the middle of the nineteenth century (though all indications are that the ban was quietly circumvented). The noisiest backlash against short selling came, perhaps predictably, in the wake of the Great Crash of 1929, when short sellers were made national scapegoats for the country’s economic woes. Shorting was denounced on the Senate floor as one of “the great commercial evils of the day” and “a major cause of prolonging the depression.”

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But the congressmen came away empty-handed, since it became clear that most of the real villains of the crash had been on the long side, inflating stock prices with hyped-up rumors and stock-buying pools and then getting out before the bubble burst. Nonetheless, the skepticism about short selling did not abate, and soon after, federal regulations were put in place that made short selling more difficult, including a rule that banned mutual funds from selling stocks short (a rule that stayed in place until 1997). In the decades that followed, many things about investing in America changed, but the hatred of short sellers was not one of them.

The Antisocial Network: The GameStop Short Squeeze and the Ragtag Group of Amateur Traders That Brought Wall Street to Its Knees
by Ben Mezrich
Published 6 Sep 2021

It would be like watching investors trying to get out of a burning building, through a single, narrow door. The stock would rocket. As a financial educator, Keith knew that short selling could be one of the riskiest plays on the market. You really needed to be certain a stock was going down, because your upside was limited, but your losses could, theoretically, be infinite. The fact that so many competent investors were short selling GameStop could mean the stock really was a dog; but it also meant the stock was loaded with rocket fuel, and it wouldn’t take much to ignite and send it right to the moon.

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On top of all this, Keith believed there was an added incentive to making a pick on a stock like GameStop, which everyone else thought was on the verge of collapse. There was so much money aligned on the negative side—so many short positions—that if somehow Keith was right, the ride up could be so much faster than the ride down. In his job as a financial educator, Keith had spent a fair amount of time breaking down the act—and sometimes art—of short selling, in a way that less savvy customers could understand. When a trader believed a company was in trouble, and its stock was overvalued, they could “borrow” shares, sell them, and then when the stock went down as they’d predicted, rebuy the shares at a lower price, return them to whoever they’d borrowed them from, and pocket the difference.

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It didn’t happen often, but when it did, it could be spectacular. Most famously, in 2008, a surprise takeover attempt of the German automaker Volkswagen by rival Porsche drove Volkswagen’s stock price up by a factor of 5—briefly making it the most valuable company in the world—in two quick days of trading, as short selling funds struggled to cover their positions. Similarly, a battle between two hedge fund titans—Bill Ackman, of Pershing Square Capital Management, and Carl Icahn—led to a squeeze involving supplement maker—and alleged pyramid marketer—Herbalife, which cost Ackman a reported $1 billion. And perhaps the first widely reported short squeeze dated back a century, to 1923, when grocery magnate Clarence Saunders successfully decimated short sellers who had targeted his nascent chain of Piggly Wiggly grocery stores.

The Great Crash 1929
by John Kenneth Galbraith
Published 15 Dec 2009

Later a congressional committee was exceedingly critical of this delay, and Al Smith's action was cited in the defense. In the case of Kreuger, it should be added, the security system of the Paris police was less than perfect. It is fairly certain that there was heavy selling that morning—including heavy short selling—of Kreuger and Toll by continental interests.2 II In many ways the effect of the crash on embezzlement was more significant than on suicide. To the economist embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months, or years may elapse between the commission of the crime and its discovery.

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During the rest of November and December the course of the market was moderately up. The decline had run its course. However, the end coincided with one last effort at reassurance. No one can say for sure that it did no good. One part was the announcement by the New York Stock Exchange of an investigation of short selling. Inevitably in the preceding weeks there had been rumors of bear raids on the market and of fortunes being made by the shorts. The benign people known as "they," who once had put the market up, were now a malign influence putting it down and making money out of the common disaster. In the early days of the crash it was widely believed that Jesse L.

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"What little business I have done in the stock market," he said, "has always been as an individual and will continue to be done on such basis." As early as October 24, The Wall Street Journal, then somewhat less reserved in its view of the world than now, complained that "there has been a lot of short selling, a lot of forced selling, and a lot of selling to make the market look bad." Such suspicions the Exchange authorities now sought to dispel. Nothing came of the study. A more important effort at reassurance was made by President Hoover. Presumably he was still indifferent to the fate of the stock market.

Fred Schwed's Where Are the Customers' Yachts?: A Modern-Day Interpretation of an Investment Classic
by Leo Gough
Published 22 Aug 2010

RETIREMENT PLANNING 27. INDEX INVESTING 28. DON’T INVEST ON A HIGH 29. COMPANIES DON’T OFTEN TURN AROUND 30. RIDE THE WINNERS 31. THE TROUBLE WITH TRANSACTION COSTS 32. CROOKS 33. AVOIDING THE BIG COLLAPSES 34. COUNTER-CYCLICAL INVESTMENT 35. GLOBALISATION 36. NUMERACY REQUIRED 37. SHORT SELLING 38. THOSE CRAZY REGULATORS 39. COLLECTIVE INVESTMENTS 40. MERGERS AND ACQUISITIONS 41. MASSAGING THE FIGURES 42. LOOKING FOR BARGAINS 43. DISCOUNTED CASH FLOW 44. STOCK MARKET NEWSLETTERS 45. LIFE PLAN 46. HEDGE FUNDS 47. SOME IMPORTANT BASICS 48. BEHAVIOURAL FINANCE 49. BUSINESS IS HARD 50.

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HERE’S AN IDEA FOR YOU… When you look at price charts you often see quite fantastic leaps and drops, often for reasons you can’t fathom. You may not know where the price is going to go next year, but you can work out the variance of its performance in the past, which gives you an estimate of how wildly this stock might leap. You might want to stick to steady stocks with the same long term performance. 37 SHORT SELLING ‘Before October 1929 no-one objected to short sellers except their own families. They objected to going bankrupt.’ Fred Schwed devotes a good deal of his book to defending short sellers, who got a lot of blame for the Wall Street Crash of 1929. It is hilarious to find the same kinds of attacks on short sellers happening today, 90 years and umpteen crashes later.

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Short sellers provide liquidity to the market and take enormous risks when doing so. They really are not a bad thing. Even Warren Buffett, who doesn’t short much himself, thinks they are useful because they seek out problems in companies, especially in their accounts, that other people are trying to keep under wraps. HERE’S AN IDEA FOR YOU… Short selling really, really isn’t for amateurs, because timing is everything; if you are just a little bit wrong you can lose a packet. Don’t try it – but if you must, why not try shorting through a spread betting company? Then at least any profits that you make will be tax free. 38 THOSE CRAZY REGULATORS ‘I find myself wishing that the [Securities and] Exchange Commission would perform its functions with a little less zip and hurrah.’

How I Became a Quant: Insights From 25 of Wall Street's Elite
by Richard R. Lindsey and Barry Schachter
Published 30 Jun 2007

(Journal of Portfolio Management), delineated the advantages of being more opportunistic with respect to residual risk taking. We were also fully aware of the cost of constraints on short selling, but we did not think short selling would be acceptable to pension fund clients. Soon after we began managing portfolios, however, some clients asked about shorting stocks. With their encouragement, we ran analyses on the stocks at the bottom of our return prediction rankings and found that they did underperform the market. Jacobs Levy soon became one of the first money managers to exploit the potential of short selling within a disciplined framework when we began offering long-short portfolios in 1990.

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It also does not give the manager much leeway to JWPR007-Lindsey 276 May 28, 2007 15:46 h ow i b e cam e a quant distinguish between degrees of negative opinions; a stock about which the manager holds an extremely negative view is likely to have roughly the same underweight as a stock about which the manager holds only a mildly negative view. Short selling removes this constraint on underweighting. Significant stock underweights can be established as easily as stock overweights. The ability to short thus enhances the manager’s ability to implement all the insights from the investment process, insights about potential losers as well as winners. Short selling also improves the ability to control risk. Benchmark weights are the starting point for determining a long-only portfolio’s residual risk. Departures from benchmark weights introduce residual risk, so a long-only portfolio tends to converge toward the weights of the stocks in its underlying benchmark in order to control risk.

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See Credit risk integrated tool set, application, 80 technology, usage, 134–135 Portfolio optimization, 281–283 “Portfolio Optimization with Factors, Scenarios, and Realistic Short Positions,” 281 Portfolio Theory (Levy/Sarnat), 228 Portfolio trading, mathematics, 128–130 Positive interest rates, ensuring, 161–162 Prepayment data, study, 183 Press, Bill, 36 Price/book controls, pure return, 272 Price data, study, 183 Price/earnings ratios, correlation, 269 Price limits, impact, 77 Primitive polynomial modulo two, 170 Prisoner’s dilemma, 160 Private equity returns, benchmarks (finding), 145 Private signals, quality (improvement), 159–160 Publicly traded contingent claims, combinations (determination), 249 Public pension funds, investment, 25 Pure mathematics, 119, 126 Quantitative active management, growth, 46–47 Quantitative approach, usage, 26–27 Quantitative finance, 237–238 purpose, 96–98 Quantitative Financial Research (Bloomberg), 137 Quantitative investing, limitation, 209 Quantitative label, implication, 25–26 Quantitative methods, role, 96–97 Quantitative Methods for Financial Analysis (Stephen/Kritzman), 253 Quantitative models, enthusiasm, 234 Quantitative portfolio management, 130–131 Quantitative strategies, usage, 240 Quantitative Strategies (SAC Capital Management, LLC), 107 Quantitative training, application process, 255–260 Quants business sense, discussion, 240–241 characteristics/description, 208–210 conjecture, 177–179 conversion, 327 data mining, 209–210 description, New York Times article, 32 due diligence, requirement, 169 future, 13–16, 261 innovations, 255–258 myths, dispelling, 258–260 perspective, change, 134–135 process, 92–93 research, 127–128 Quigg, Laura, 156–158, 160 Quotron, recorded data (usage), 22 Rahl, Leslie, 83–93 Ramaswamy, Krishna, 253 385 RAND Corporation, 13–17 Raroc models, usage/development, 102–103 Raroc performance metric, 103 Reagan, Ronald, 15 Real economic behavior, level (usefulness), 101 Real options (literature), study, 149 Real-time artificial intelligence, 16 Rebonato, Riccardo, 168, 169, 232 Reed, John, 89 Registered investment advisors, 79 Regression, time-varying, 239 Renaissance Medallion fund, 310 Representation Theory and Complex Geometry, 122–125 Resampling statistics, usage, 239–240 Research collaboration, type, 157–158 Research Objectivity Standards, 280–281 Retail markets, changes, 148–149 Return, examination, 71–72 Return-predictor relationships, 269 Returns separation, 34–35 variance, increasing, 72 “Revenue Recognition Certificates: A New Security” (LeClair/Schulman), 82 Rich, Don, 256 Riemann Hypothesis, solution, 108 Risk analytics, sale, 301 bank rating, 216 buckets, 71 cost, 129 examination, 70–71 forecast, BARRA bond model (usage), 39 importance, 34–35 manager, role, 302–303 reversal, 299 worries, 39 Risk-adjusted return, 102 Risk management, 233 consulting firm, 293 technology, usage, 134–135 world developments, 96 Risk Management (Clinton Group), 295 Risk Management & Quantitative Research (Permal Group), 227 RiskMetrics, 300–301 business, improvement, 301 computational device, 240 Technical Document, publication (1996), 66 Risk/return trade-off, 259 RJR Nabisco, LBO, 39 Roll, Richard, 140 Ronn, Ehud, 157, 160–162 Rosenberg, Barr, 34–42 models, development, 34–37 Rosenbluth, Jeff, 132 Ross, Stephen A., 141, 254, 336 arbitrage pricing model, development, 147–148 Rubinstein, Mark, 278, 336 P1: OTE/PGN JWPR007-Lindsey P2: OTE January 1, 1904 6:33 386 Rudd, Andrew, 35, 307 historical performance analysis, 44 Rudy, Rob, 219 Russell 3000, constitution, 275 Salomon Brothers, Bloomberg (employ), 73 Samuelson, Paul, 256–257 time demonstration, 258 Sankar, L., 162 Sargent, Thomas, 188 Savine, Antoine, 167 Sayles, Loomis, 33 SBCC, 285 Scholes, Myron, 11, 88, 177, 336 input, 217 Schulman, Evan, 67–82 Schwartz, Robert J., 293, 320 Secret, classification, 16–18 Securities Act of 1933, 147 Securities Exchange Act of 1934, 147 Security replication, probability (usage), 122 SETS, 77 Settlement delays, 174 Seymour, Carl, 175–176 Shareholder value creation, questions, 98 Sharpe, William, 34, 254 algorithm, 257–258 modification, 258 Shaw, Julian, 227–242 Sherring, Mike, 232 Short selling, 275–276 Short selling, risk-reducing/returnenhancing benefits, 277 Short-term reversal strategy, 198–199 Shubik, Martin, 288–289, 291, 293 Siegel’s Paradox, 321–322 Sklar’s theorem, 240 Slawsky, Al, 40–41 Small-cap stocks, purchase, 268 Smoothing, 192–193 Sobol’ numbers, 173–173 Social Sciences Research Network (SSRN), 122 Social Security system, bankruptcy, 148 Society for Quantitative Analysis (SQA), 253 Spatt, Chester, 252 Spot volatility, parameter, 89–90 Standard & Poor’s futures, price (relationship), 75 INDEX Start-up company, excitement, 24–25 Statistical data analysis, 213–214 Statistical error, 228 Sterge, Andrew J., 317–327 Stevens, Ross, 201 Stochastic calculus, 239 Stock market crash (1987), 282 Stocks portfolio trading, path trace, 129 stories, analogy, 23–26 Strategic Business Development (RiskMetrics Group), 49 Sugimoto, E., 171 Summer experience, impact, 57 Sun Unix workstation, 22 Surplus insurance, usage, 255–256 Swaps rate, Black volatilities, 172 usage, 292–293 Sweeney, Richard, 190 Symbolics, 16, 18 Taleb, Nassim, 132 Tenenbein, Aaron, 252 Textbook learning, expansion, 144 Theoretical biases, 103 Theory, usage/improvement, 182–185 Thornton, Dan, 139 Time diversification, myths, 258 Top secret, classification, 16–18 Tracking error, focus, 80–81 Trading, 72–73 Transaction cost, 129 absence, 247 impact, 273–274 Transaction pricing, decision-making process, 248 Transistor experiment (TX), 11 Transistorized Experimental Computer Zero (tixo), usage, 86 Treynor, Jack, 34, 254 Trigger, usage, 117–118 Trimability, 281 TRS-80 (Radio Shack), usage, 50, 52, 113 Trust companies, individually managed accounts (growth), 79 Tucker, Alan, 334 Uncertainty examination, 149–150 resolution, 323–324 Unit initialization, 172 Universal Investment Reasoning, 19–20 Upstream Technologies, LLC, 67 U.S. individual stock data, research, 201–202 Value-at-Risk (VaR), 195. calculation possibility tails, changes, 100 design, 293 evolution, 235 measurement, 196 number, emergence, 235 van Eyseren, Olivier, 173–175 Vanilla interest swaptions, 172 VarianceCoVariance (VCV), 235 Variance reduction techniques, 174 Vector auto-regression (VAR), 188 Venture capital investments, call options (analogy), 145–146 Volatility, 100, 174, 193–194 Volcker, Paul, 32 von Neumann, John, 319 Waddill, Marcellus, 318 Wall Street business, arrival, 61–65 interest, 160–162 move, shift, 125–127 quant search, genesis, 32 roots, 83–85 Wanless, Derek, 173 Wavelets, 239 Weisman, Andrew B., 187–196 Wells Fargo Nikko Investment Advisors, Grinold (attachment), 44 Westlaw database, 146–148 “What Practitioners Need to Know” (Kritzman), 255 Wigner, Eugene, 54 Wiles, Andrew, 112 Wilson, Thomas C., 95–105 Windham Capital Management LLC, 251, 254 Wires, rat consumption (prevention), 20–23 Within-horizon risk, usage, 256 Worker longevity, increase, 148 Wyckoff, Richard D., 321 Wyle, Steven, 18 Yield, defining, 182 Yield curve, 89–90, 174 Zimmer, Bob, 131–132 

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

Mack was reviewing draft language for the statement he would publish the following day in support of Cuomo’s investigation into short selling. Though he knew full well that his language would infuriate his clients and send even more of them packing, Mack didn’t believe he had a choice but to lend his support: Morgan Stanley applauds Attorney General Cuomo for taking strong action to root out improper short selling of financial stocks. By initiating a wide-ranging investigation of this manipulative and fraudulent conduct, Attorney General Cuomo is showing decisive leadership in trying to help stabilize the financial markets. We also support his call for the SEC to impose a temporary freeze on short selling of financial stocks, given the extreme and unprecedented movements in the market that are unsupported by the fundamentals of individual stocks.

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“Our proposal”: “Part I, Part II of a Hearing of the Senate Banking, Housing and Urban Affairs Committee,” Federal News Service, July 15, 2008. SEC to begin cracking down on improper short selling: The SEC issued an emergency diktat to halt “unlawful manipulation through ‘naked’ short selling,” which was set to start that Monday, July 21, 2008, and expire after thirty days. Kara Scannell and Jenny Strasburg, “SEC Moves to Curb Short-Selling,” Wall Street Journal, July 16, 2008. Lehman’s board: Dennis K. Berman, “Where Was Lehman’s Board?” WSJ Blog/Deal Journal, September 15, 2008. Ken Wilson was standing in line at Westchester County Airport: Susanne Craig, “In Ken Wilson, Paulson Gets Direction from the Go-To Banker of Wall Street,” Wall Street Journal, July 22, 2008.

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Congress to increase the debt ceiling: The “debt ceiling” was a political hot potato that would require Congress to vote to increase the amount of debt the country could take on, and Congress had just increased the amount to $10.615 trillion in July. “The market is trading under the assumption”: “European Shares Rise after Central Bank Plan, Asia Losses,” Agence France-Presse, September 18, 2008. “The Star-Spangled Banner”: New York Times, October 2, 2008. FSA announcing temporary ban on short-selling: David Prosser, “Hedge Funds’ Misery as FSA Bans Short-selling on 32 Firms,” Independent, September 20, 2008. “Treasury, Fed Weighing Wider Plan”: Alison Vekshin, “Treasury, Fed Weighing Wider Plan to Ease Crisis, Schumer Says,” Bloomberg, September 18, 2008. Charlie Gasparino of CNBC reported what he was hearing from his sources on Wall Street”: “Treasury Secretary Hank Paulson is working on an RTC-type solution to the financial crisis, reports CNBC’s Charlie Gasparino,” CNBC, September 18, 2008.

Mathematics for Economics and Finance
by Michael Harrison and Patrick Waldron
Published 19 Apr 2011

The vector of net trades carried out by an investor moving from the portfolio w0 to the portfolio w1 can be thought of as the hedge portfolio w1 − w0 . Definition 6.2.3 Short-selling a security means owning a negative quantity of it. In practice short-selling means promising (credibly) to pay someone the same cash flows as would be paid by a security that one does not own, always being prepared, if required, to pay the current market price of the security to end the arrangement. Thus when short-selling is allowed w can have negative components; if shortselling is not allowed, then the portfolio choice problem will have non-negativity constraints, wi ≥ 0 for i = 1, . . . , N .

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THE SINGLE-PERIOD PORTFOLIO CHOICE PROBLEM 6.3 The Single-period Portfolio Choice Problem 6.3.1 The canonical portfolio problem Unless otherwise stated, we assume that individuals: 1. have von Neumann-Morgenstern (VNM) utilities: i.e. preferences have the expected utility representation: v(z̃) = E[u(z̃)] Z = u(z)dFz̃ (z) where v is the utility function for random variables (gambles, lotteries) and u is the utility function for sure things. 2. prefer more to less i.e. u is increasing: u 0 (z) > 0 ∀z (6.3.1) u 00 (z) < 0 ∀z (6.3.2) 3. are (strictly) risk-averse i.e. u is strictly concave: Date 0 investment: • wj (pounds) in jth risky asset, j = 1, . . . , N • (W0 − P j wj ) in risk free asset Date 1 payoff: • wj r̃j from jth risky asset • (W0 − P j wj )rf from risk free asset It is assumed here that there are no constraints on short-selling or borrowing (which is the same as short-selling the riskfree security). The solution is found as follows: Choose wj s to maximize expected utility of date 1 wealth, W̃ = (W0 − X wj )rf + j = W0 rf + X j Revised: December 2, 1998 X wj r̃j j wj (r̃j − rf ) CHAPTER 6. PORTFOLIO THEORY 111 i.e. max f (w1 , . . . , wN ) ≡ E[u(W0 rf + {wj } X wj (r̃j − rf ))] j The first order conditions are: E[u0 (W̃ )(r̃j − rf )] = 0 ∀j

Systematic Trading: A Unique New Method for Designing Trading and Investing Systems
by Robert Carver
Published 13 Sep 2015

Alternatively they could rely on forward looking data that was published with a delay not present in the back-test. There may be also survivorship bias in the 29 Systematic Trading instruments you are considering.You might have underestimated trading costs or missed out an important element of the market structure at the time, such as constraints on short selling of equities. Finally your history could be too brief and miss out on a crucial period when the strategy would have blown up.23 The world changes You want strategies that worked in the past and will continue to do so. But what if the behaviour or market pattern you are trying to exploit vanishes?

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Systematic Trading Rules Behavioural effects A classical financial economist would be comfortable with most of the above explanations. But you can also create rules which extract returns from other people’s behavioural weaknesses. These effects persist because of market inefficiencies such as bans on short selling, and the sheer weight of money influenced by these biases. The early loss taker trading rule of chapter one is a simple trend following rule which I believe is profitable because of prospect theory biases. People don’t want to keep recent winners, they prefer hanging on to losers, and they will give up excess returns for the nice warm feeling they get from behaving like this.

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This chapter is about making forecasts. I’ll return to the rest of Sergei’s wisdom in subsequent chapters. A forecast is a number: a positive value means you want to buy the asset because the price is expected to go up and a negative indicates you want to short the asset. Investors who don’t use derivatives and can’t short sell will only make positive forecasts. A forecast shouldn’t be binary – buy or sell – but should be scaled. Forecasts close to zero indicate a small movement in prices and larger absolute values mean you expect bigger returns. There are three reasons why scaled forecasts make sense. Firstly, if you were to examine the returns made by a trading rule given the size of its forecasts, you’d normally find that forecasts closer to zero aren’t as profitable as those further away.

Money Men: A Hot Startup, a Billion Dollar Fraud, a Fight for the Truth
by Dan McCrum
Published 15 Jun 2022

The brick houses were detached, the drives large and the great outdoors nearby. The neighbours were friendly and opposite the open end of the street was a decent pub. It was the sort of safe, comfortable area with good schools favoured by London professionals. He was still working from home, planning the launch of a short selling business, but he intended to do it as far away from the erratic Perring as possible. The longer he’d spent with the oddball, the stranger his behaviour came to seem. At one point he’d heard Perring talking into his phone as if having a conversation in Chinese. Earl was no expert linguist, but it didn’t sound like the real thing.

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I couldn’t vary the route much so I chose one where I mostly picked through slow traffic or cut through side streets, keeping an irregular schedule and trying to quell that voice which said wouldn’t it be convenient if I was hit by a truck. Ten days after the Singapore police raided Wirecard’s office, the German authorities finally responded by protecting Wirecard. In Frankfurt, BaFin announced a two-month ban against short selling of the company’s shares, citing the group’s ‘importance for the economy’. It was the regulator’s most powerful weapon, a ban on speculation only previously used during the depths of the 2008 financial crisis when eleven banks were at risk of collapse. The broader European Securities and Markets Authority piped up as well, declaring the ban proportionate and appropriate as ‘the current circumstances related to Wirecard are adverse events or developments which constitute a serious threat to market confidence in Germany.’

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Instead it described Harris as a specialist spread better with a background in asset management. It said that the broker was told by a friend that a FT story was coming at 1 p.m. At the bottom there was no signature. Daniel Harris had not gone through with it. Armed with this ‘evidence’, on Monday morning BaFin announced the short selling ban. Suit crisp, poise confident, Jan Marsalek walked into the office of the Munich public prosecutor just after noon on Thursday, 21 February. He was flanked by Franz Enderle, one of the most famous corporate lawyers in Germany. A weighty presence next to the slim Marsalek, a sexagenarian with thick eyebrows and a bow tie, he was renowned as a relentless advocate at one of Germany’s most fearsome firms, Bub Gauweiler.

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

(They are now, and the ceiling on deposit insurance has been taken off.) Some investors anticipated the effect of the bursting of the housing bubble on mortgagebacked securities and made billions selling short the securities backed by low-rated mortgages. But there was not enough short selling to alert the market and the government to the weakness of the banks, in part because, as noted earlier, short selling is a risky investment strategy. Premature short sellers lose big, and there were many such because of the duration of the housing bubble. 5 The Government Responds The Government's Response to the crash has moved through four phases, with a fifth that at this writing is wending its way through Congress.

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

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Moreover, investors can lower their risk by diversifying their portfolios, so the fact that they own stock in some firms that have a very high ratio of fixed to variable costs and are therefore at risk of bankruptcy needn't worry them. One might think a bubble would collapse before it got too big because investors who realized it was a bubble would sell short—in this case, sell interests in mortgage-backed securities short. But short selling in a bubble is very risky unless the bubble is expected to burst very soon. A short seller typically borrows securities that he thinks will lose value and contracts to sell them at a specified price (presumably close to the current market price) on a specified future date. If the market price has fallen by then, he buys the identical securities at that lower price and returns them to the lender.

The Crisis of Crowding: Quant Copycats, Ugly Models, and the New Crash Normal
by Ludwig B. Chincarini
Published 29 Jul 2012

Understanding net risk is genuinely difficult. The companies Buffett owns use derivatives, and Buffett’s Berkshire Hathaway sold Lehman Brothers lots of credit default swaps on municipal-bond debt. 2. See Chincarini (2010). 3. Investors short-sell when they promise to sell a security that they don’t already own. The brokerage house—Lehman Brothers, in this case—handles the logistics of short-selling. Short-selling can bring efficiency to the market. Think of buying and selling as ways to vote on a security’s appropriate price. If no one ever short-sold a security, stock prices might be higher than appropriate, because no investor could vote for them to be lower. 4.

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Quantitative funds have a number of common attributes.12 Quantitative equity funds are usually market-neutral or enhanced index hedge funds or mutual funds that use computers to sort stocks by desirable and less desirable factors. They buy stocks with good factors and short sell stocks with bad factors, hoping to create a portfolio that is immune to overall market movements, but outperforms over time as desirable stocks perform better than less-desirable stocks. Many of these funds have a value tilt, believing that it’s better to own stocks that trade at low prices relative to forecast earnings. Thus, a fund might short sell stocks that trade at very high multiples to earnings (conditional on other information), while buying stocks with low prices relative to forecast earnings.

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It was easier to just sell the warrants in the Swiss market at a price that reflected the hassle of exercising them. As the warrants were trading at less than their intrinsic value, an arbitrage firm might have bought the warrants and short sold the related stocks. The strategy could have worked in the United States, but it was difficult to borrow these small-cap Japanese stocks, and to short sell a stock that it doesn’t own, a firm has to borrow it first. LTCM came up with an exact solution. It bought a basket of small-cap stocks in the JASDAQ (Japanese Association of Securities Dealers Automated Quotations Index) with cheap associated warrants and shorted the JASDAQ futures contract. The hedge wasn’t a perfect one, because LTCM’s short position was on the whole index, and the basket was only a subset of Japanese stocks.

The Physics of Wall Street: A Brief History of Predicting the Unpredictable
by James Owen Weatherall
Published 2 Jan 2013

The origins of this investment practice, known as short selling, are obscure, but it is at least three hundred years old. We know this because it was banned in England in the seventeenth century. Today, short selling is perfectly standard. But in the 1960s — indeed, for much of the practice’s history — it was viewed as dangerous at best, and perhaps even depraved or unpatriotic. The short seller was perceived as a blatant speculator, gambling on market moves rather than investing capital to spur growth. Worse, he had the nerve to take a financial interest in bad news. This struck many investors as déclassé. Views on short selling changed in the 1970s and 1980s, in part because of Thorp’s and others’ work, and in part because of the rise of the Chicago School of economics.

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As those economists argued at the time, short selling may seem crude, but it serves a crucial social good: it helps keep markets efficient. If the only people who can sell a stock are the ones who already own it, people who have information that could be bad for the company often don’t have any way of affecting market prices. This would mean that information could be available that isn’t reflected in the stock price, because the people who have access to the information aren’t able to participate in the market. Short selling prevents this situation. Whatever the social impact, short selling does have real risks attached.

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If you sell $1,000 worth of AT&T short, when it comes time to buy the shares back to repay the person you borrowed them from, you might need to come up with a lot more money than you originally received in the sale in order to get the shares back. Still, Thorp was able to find a broker who was willing to execute the required trades. This solved one problem, of figuring out how to apply Kelly’s results in the first place. But even if Thorp could ignore the social stigma of short selling — and he could — the real dangers of unlimited losses remained. Here, though, Thorp had one of his most creative insights. His analysis of warrant pricing gave him a way of relating warrant prices to stock prices. Using this relationship, he realized that if you sell warrants short, but at the same time you buy some shares of the underlying stock, you can protect yourself against the warrant increasing in value — because if the warrant increases in value, according to Thorp’s calculations the stock price should also increase, limiting your losses on the warrant.

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

Positive Outlier Trades as a Percent of Total Trades for the Year 80% 72% 70% 59% 60% 50% 44% 42% 43% 39% 40% 37% 36% 38% 35% 28% 30% 21% 20% 11% 11% 10% 9% 10% 12% 8% 6% 6% 3% 0% % Positive Outlier Trades 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 0% 318 Trend Following (Updated Edition): Learn to Make Millions in Up or Down Markets Short Selling For the purposes of this project, we decided against testing short-selling6 strategies. Our reasons for this have to do with the following issues. Forced Buy-Ins A short seller has to borrow shares before they can short sell them. Likewise, the short seller must return (deliver) the shares should the brokerage firm call them back. From the historical data available, there is no way to know when or if a short seller would have been subject to a forced buy-in.7 Borrowing Shares Short selling a security requires borrowing shares from an investor who holds them in a margin account.

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Foreword to the First Edition by Charles Faulkner . . . . . . . . . . . . . . . . 247 248 253 265 266 277 278 279 280 281 282 285 285 288 290 294 296 299 Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303 Introduction to Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A Trend Following for Stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Does Trend Following Work on Stocks? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short Selling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Capitalism Distribution: Observations of Individual Common Stock Returns, 1983–2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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From the historical data available, there is no way to know when or if a short seller would have been subject to a forced buy-in.7 Borrowing Shares Short selling a security requires borrowing shares from an investor who holds them in a margin account. Not all stocks meet these criteria all the time; some never meet these criteria at all. There is no reliable method to determine what stocks from the investable universe would have been realistically shortable in the past. Limited Expectancy With respect to long-term trend following, short selling offers a severely limited mathematical expectancy. The price of a stock can decline only by a maximum of 100 percent. However, it can rise by an infinite amount. This is a significant disability to overcome. Tax Efficiency The average hold time for the average trade came in lower than the 12 months necessary to qualify for long-term capital gains treatment.

Quantitative Value: A Practitioner's Guide to Automating Intelligent Investment and Eliminating Behavioral Errors
by Wesley R. Gray and Tobias E. Carlisle
Published 29 Nov 2012

We go bargain hunting in Part Four, looking for the price ratios that best identify undervalued stocks and lead to the best risk-adjusted investment performance. We look at several unusual implementations of price ratios, including long-term average price ratios and price ratios in combination. Part Five sets out a variety of signals sent by other market participants. There we look at the impact of buybacks, insider purchases, short selling, and buying and selling from institutional investment managers like activists and other fund managers. Finally, in Part Six we build and test our quantitative value model. We study the best way to combine the research we've considered into a cohesive strategy, and then back-test the resulting quantitative value model.

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With our examination of quality and price completed, we now move to the final phase of our investment checklist: finding stocks with signals that corroborate our valuation. In the next part, we consider several different signals sent by market participants to find those that forecast market-beating performance. We examine buy-backs, insider buying, activism, institutional investors, and short selling. NOTES 1. Benjamin Graham, and David Dodd, Security Analysis: The Classic 1934 Edition (McGraw-Hill, 1996). 2. J. Y. Campbell and R. J. Shiller, “Valuation Ratios and the Long-Run Stock Market Outlook.” Journal of Portfolio Management (Winter 1998): 11–26. 3. John Y. Campbell and Robert J.

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The second potential pitfall is in aggregating institutional investment manager stock purchases to the point that the target stocks are heavily concentrated with institutional investment managers. Some cloning services allow investors to create a portfolio that takes the most popular ideas from a number of institutional investment managers that have historically performed very well. SHORT MONEY IS SMART MONEY Short selling is the practice of selling a stock in anticipation of a decline in its price. The stock sold short is borrowed from another market participant and must eventually be bought back and returned to the lender, which is called covering. If the price declines as anticipated, the short seller covers to realize a profit.

Derivatives Markets
by David Goldenberg
Published 2 Mar 2016

It also depends who you are and what counterparties will agree to. J. P. Morgan can do a lot more than the private investor can on his own. Sometimes one can short an Exchange Traded Fund (ETF) related to the underlying commodity as a proxy for short selling the actual underlying commodity, because there are short ETFs available in the market. Classical short selling a commodity, like an equity security, means borrowing it from a broker, selling it immediately, and placing the proceeds from that sale (in addition to required margins) in an account. The good news is that interest can be paid on that account, so in effect its opportunity cost is zero.

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Provided that we accomplish this with payoffs that are no larger than the payoffs to the put option, the dominance principle then will provide a lower bound to the put option’s current price. In order to partially replicate the long European put option position, we have to short sell less than one unit of underlying stock, because the short position in the spot market has to restitute the option seller for the dividends paid out over [t,T]. If we short sell e–ρτ units of underlying stock at time t, everything works out fine because, once again, e–ρτSt grows to , by definition. Table 11.6 indicates the partial replication strategy. Note that Strategy A has payoffs at least as great as the payoffs to Strategy B in all states of the world.

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Each loan creates a financial instrument called a mortgage bond, a student loan (repayment) bond, or a car loan (repayment) bond. The forward (futures) markets permit future borrowing and lending at fixed rates determined today. What position in the bond is taken by the individual who takes out a loan either currently or in the future? The person would be issuing (shorting, selling) the financial instrument created as a result of the loan agreement. Then the individual would typically pay a fixed rate—unless the loan was a variable-rate bond like a variable-rate mortgage. The same reasoning applies to forward loans. Note that ‘selling’ here doesn’t mean selling something you already own.

Endless Money: The Moral Hazards of Socialism
by William Baker and Addison Wiggin
Published 2 Nov 2009

Certain of their brokers secured special regulations that unfairly advantaged large customers, many of which manipulated commodity prices. Their use of short selling was heavily directed against the financial sector itself, and by July 2008 Congress looked into the matter, triggering the SEC to ban “naked” short selling of the common stocks of 19 banks and brokers. By generating such a list, the government favored some companies over others, socialistically guiding where dollars may and may not flow, to the detriment of others not privileged enough to 140 ENDLESS MONEY make the list. In September, the list was expanded to cover 799 financial firms for which no short selling would be permitted, even when it would be done with borrowed shares.2 The Congressional hearings are reminiscent of the government’s scrutiny of capital pools in the early 1930s.

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But what is far more relevant is the SEC’s tacit allowance of naked short selling through what became known as the “Madoff Rule,” which exempted market makers from the same requirements to deliver stock after stock sales. This essentially provided broker-dealers with the ability to legally counterfeit securities, and to rent this resource out to hedge fund clients. Patrick Byrne, CEO of Overstock.com, a company victimized by relentless naked short selling, worked with reporter Mark Mitchell to reveal the extent of the naked short-selling problem through his web site www.deepcapture.com. Clearly this activity has been pernicious to the equity of some companies.

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If economic actors had been relatively debt free, they would have been strong enough to intercede in capital markets and take advantage of economic opportunities presented by illegitimately pummeled stock prices, somewhat akin to the soaking up of stock through corporate repurchases in the aftermath of the 1987 crash. Politicians demonize the hedging of risk with commodities and even the legitimate deployment of short selling, but the quasi-government entities they have chartered—the Fed and the mortgage agencies—have fostered the overexpansion of credit that is debasing the coin of the realm and brought us to the edge of systemic failure. Only a socialist government would single out those seeking to flee and penalize them as perpetrators.

How the City Really Works: The Definitive Guide to Money and Investing in London's Square Mile
by Alexander Davidson
Published 1 Apr 2008

But they can take a short position using contracts for difference, covered warrants, or spread betting (see Chapter 9). In 2002, terrorist groups were suspected of having raised funds by taking short positions on various stocks before and after the 11 September 2001 terrorist attacks on New York, but this was never proven. In October 2002, the Financial Services Authority issued a discussion paper on short selling. It considered it a legitimate activity but thought more transparency would be helpful, and, in the years since, it has not changed its position.  32 HOW THE CITY REALLY WORKS __________________________________ If an investment bank has a net short position in a stock, it may borrow from a lender to deliver the securities on the agreed settlement date.

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If the bank has a net long position, it may lend the stock to borrowers for a fee. As a result of short trades, stock lending flourishes in bull markets, and improves market liquidity. Stock lending figures, available from Euroclear UK & Ireland and other sources, provide only a very loose indication of short selling levels as other factors must be considered as well. Market indices If you want to see how the broad market, or a part of it, is performing at any given time, you will look at market indices. The indices can serve as a benchmark against which to buy or sell individual shares or a portfolio. The most widely quoted index is the FTSE 100 Index, which covers the largest 100 stocks listed on the LSE by market capitalisation (share price multiplied by number of shares in issue).

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As a trader, you may place a bet based on your belief that a share price, an index, or interest rates will move up or down. Spread betting and CFDs (see under the next heading) make it possible to take a short position, which is a position that will profit if the underlying instrument goes down. Short selling is effectively closed to private investors in conventional share trading, due to the short standard settlement period. Spread bets are geared and, as a trader, you need to put up only an initial margin, perhaps 10–15 per cent of the underlying value, but will need to top up the amount should the trading position move against you, on the same principle as for options or futures.

Commodity Trading Advisors: Risk, Performance Analysis, and Selection
by Greg N. Gregoriou , Vassilios Karavas , François-Serge Lhabitant and Fabrice Douglas Rouah
Published 23 Sep 2004

We can calculate the cumulative performance improvement to the stock/bond/hedge fund of funds portfolio from downside risk protection and upside return enhancement by: (−1.90% × 42 months) − (−2.07 × 42 months) + [(0.92% − 0.91%) × 132 months] = 8.46% 225 60/40 US Stocks/ US Bonds 55/35/10 Stocks/ Bonds/FOF 55/35/10 Stocks/ Bonds/Equity L/S 55/35/10 Stocks/Bonds/ Convertible Arb 55/35/10 Stocks/Bonds/ Market Neutral 55/35/10 Stocks/Bonds/ Distressed Debt 55/35/10 Stocks/Bonds/ Event Driven 55/35/10 Stocks/Bonds/ Fixed Income Arb 55/35/10 Stocks/Bonds/ Global Macro 55/35/10 Stocks/Bonds/ Market Timing 55/35/10 Stocks/Bonds/ Merger Arbitrage 55/35/10 Stocks/Bonds/ Short Selling 2.54% 2.42% 2.40% 2.45% 2.49% 2.36% 2.51% 2.50% 2.43% 1.00% 0.93% 0.92% 0.95% 0.95% 0.90% 0.97% 0.95% 0.93% 2.02% 2.45% 0.92% 0.85% 2.60% 0.91% Standard Deviation 0.198 0.196 0.198 0.207 0.189 0.201 0.204 0.195 0.197 0.215 0.191 0.177 Sharpe Ratio 40 41 42 43 42 41 40 40 41 −2.03% −1.88% −1.83% −1.84% −1.91% −1.86% −2.04% −2.03% −1.90% 37 42 −1.90% −1.63% 42 Number of Downside Months −2.07% Average Downside Downside Risk Protection Using Hedge Funds Expected Portfolio Composition Return TABLE 11.2 26.63% 9.04% 5.74% 5.34% 10.68% 6.72% 8.25% 10.08% 9.86% 5.74% 7.14% N/A Cumulative Downside Protection −7.92% 3.57% 7.18% 9.86% −1.32% 5.28% 4.37% 1.32% 3.57% 13.88% 1.32% N/A Cumulative Upside Potential 18.71% 12.61% 12.92% 15.20% 9.36% 12.00% 12.62% 11.40% 13.43% 19.62% 8.46% N/A Cumulative Performance Improvement 226 RISK AND MANAGED FUTURES INVESTING The cumulative performance improvement of 8.46 percent may be split into two parts, the cumulative return earned from downside risk protection (7.14 percent) and the amount earned from upside return potential (1.32 percent).

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A 25-year study recently conducted by Goldman Sachs (2003) concluded that a 10 percent allocation of a securities portfolio to managed 235 236 MANAGED FUTURES INVESTING, FEES, AND REGULATION 70 60 50 40 30 20 10 0 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003* FIGURE 12.1 Growth of Managed Futures, 1988–2002 Source: Barclay Trading Group, Ltd. “Money Under Management in Managed Futures,” www.barclaygrp.com. Copyright © 2002–2004 Barclay Trading Group, Ltd. *First quarter 2003. –23.37% S&P 500 –31.52% NASDAQ –16.75 DJIA Composite Index –1.19% Short Selling Index Emerging Markets Macro Index Fixed Income 25.06% 4.58% 8.28% 6.75% Equity Market Neutral 1.80% Fund of Funds 1.11% Managed Futures –35 –30 –25 –20 –15 –10 –5 0 15.22% 5 10 15 20 25 FIGURE 12.2 Performance Comparison 2002 Source: Equities: International Traders Research (ITR), an affiliate of Altegris Investments; Hedge Funds; Hedge Fund Research, Inc. © HFR, Inc. [15 January 2003], www.hfr.com; Managed Futures; ITR Premier 40 CTA Index.

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More recently, the Securities and Exchange Commission (SEC) has raised concerns about the increasing retailization of hedge funds, commodity pools, and private equity funds, the unregulated nature of these products and the potential for fund managers to defraud investors, and the market impact of hedge fund investment strategies such as short selling (SEC 2003).1 The SEC’s concerns are usefully summarized in Wider and Scanlan (2003). In Australia, the Australian Prudential Regulation Authority (APRA), the prudential regulator of banks, insurance companies, and pension funds, recently has questioned the increasing allocation of funds by Australian pension funds to hedge funds and other alternative investments.

Attack of the 50 Foot Blockchain: Bitcoin, Blockchain, Ethereum & Smart Contracts
by David Gerard
Published 23 Jul 2017

Disappeared in 2011; nobody knows who he was. SEC: The U.S. Securities and Exchange Commission, the government agency that enforces securities law and regulates the industry. Its mission statement is: “protect investors; maintain fair, orderly, and efficient markets; facilitate capital formation.” Short selling, shorting: selling a security you don’t own in the hope it will go down and you can buy to cover what you sold. A form of margin trading. Smart contract: a contract implemented as a computer program that triggers given particular conditions. The DAO: a smart contract for a Distributed Autonomous Organization, intended to operate as an automated venture capital firm.

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Bitcoin exchanges: keep your money in a sock under someone else’s bed “Be your own bank” is actually very hard – particularly with “no chargebacks”, meaning that in the event of a theft or even a mistake you’re completely out of luck – so almost everyone who uses cryptocurrencies keeps their coins on an exchange. Exchanges also let you trade between different cryptocurrencies, crypto assets and conventional currencies, and some even offer short-selling and other margin trading, which are enormously popular. Bitcoin exchanges were started by amateur enthusiasts. Most were computer programmers whose approach to anything outside their field was “I know PHP, how hard could running an exchange be?” As Dunning and Kruger pointed out in 1999,79 this approach tends not to work out so well.

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Margin call: when you need to pay back your margin trading loan. Margin trading: taking a loan from your brokerage to buy a security; lets you buy more than the value of the assets you have to hand. Could be hoping for the security to go up or down. Can pay off hugely, but is risky (especially with cryptos). Short selling is a form of margin trading. Mark Karpelès: Owner of Mt. Gox when it collapsed. Did nothing wrong. Mempool: the “memory pool,” in the memory of a computer running a Bitcoin node, where unconfirmed transactions pile up. Merchant: actual shopkeeper selling legal goods or services, who probably doesn’t accept Bitcoin.

Reminiscences of a Stock Operator
by Edwin Lefèvre and William J. O'Neil
Published 14 May 1923

Three of Rockefeller’s personal max ims were, “Good leadership consists of showing average people how to do the work of superior people;” “If your only goal is to become rich, you will never achieve it;” and “I always tried to turn every disaster into an opportunity.” 1.14 Short selling at a bucket shop was quite different than short selling at a legitimate brokerage. Legitimate shorting involves the borrowing of shares you don’t own, normally from another of your broker’s clients, and then selling them with the expectation of buying them back at a lower price and pocketing the difference. But since the bucket shops did not buy or sell actual securities, the trans action was not much different from going long.

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The market had been going up all that week—this was twenty years ago, remember—and it was a cinch the bank statement on Saturday would show a big decrease in the surplus reserve.That would give the conventional excuse to the big room traders to jump on the market and try to shake out some of the weak commission-house accounts. There would be the usual reactions in the last half hour of the trading, particularly in stocks in which the public had been the most active. Those, of course, also would be the very stocks that Teller’s customers would be most heavily long of, and the shop might be glad to see some short selling in them. There is nothing so nice as catching the suckers both ways; and nothing so easy—with one-point margins. Livermore would have likely seen the initial results of the statement stream over the ticker. Not all the details would have been available, but he would have been able to see the total weekly changes in the various categories.

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We have two or three very wealthy customers who buy and sell stocks in a big way. I don’t want the Street to suspect them of selling long stock every time we sell ten or twenty thousand shares of any stock. If the Street knows that you are trading in our office it will not know whether it is your short selling or the other customers’ long stock that is coming on the market.” I understood at once. He wanted to cover up his brother-in-law’s operations with my reputation as a plunger! It so happened that I had made my biggest killing on the bear side a year and a half before, and, of course, the Street gossips and the stupid rumor mongers had acquired the habit of blaming me for every decline in prices.

The End of Growth: Adapting to Our New Economic Reality
by Richard Heinberg
Published 1 Jun 2011

But just how does one successfully go about investing to profit on assets whose value is declining? The answer: short selling (also known as shorting or going short), which involves borrowing the assets (usually securities borrowed from a broker, for a fee) and immediately selling them, waiting for the price of those assets to fall, buying them back at the depressed price, then returning them to the lender and pocketing the price difference. Of course, if the price of the assets rises, the short seller loses money. If this sounds dodgy, then consider naked short selling, in which the investor sells a financial instrument without bothering first to buy or borrow it, or even to ensure that it can be borrowed.

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If this sounds dodgy, then consider naked short selling, in which the investor sells a financial instrument without bothering first to buy or borrow it, or even to ensure that it can be borrowed. Naked short selling is illegal in the US, but many knowledgeable commentators assert that the practice is widespread nonetheless. In the boom years leading up to the 2007–2008 crash, it was often the wealthiest individuals who engaged in the riskiest financial behavior. And the wealthy seemed to flock, like finches around a bird feeder, toward hedge funds: investment funds that are open to a limited range of investors and that undertake a wider range of activities than traditional “long-only” funds invested in stocks and bonds — activities including short selling and entering into derivative contracts.

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Paper currencies not backed by metal had sprung up from time to time, starting as early as the 13th century ce in China; by the late 20th century, they were the near-universal norm. Along with more abstract forms of currency, the past century has also seen the appearance and growth of ever more sophisticated investment instruments. Stocks, bonds, options, futures, long- and short-selling, credit default swaps, and more now enable investors to make (or lose) money on the movement of prices of real or imaginary properties and commodities, and to insure their bets — even their bets on other investors’ bets. Probably the most infamous investment scheme of all time was created by Charles Ponzi, an Italian immigrant to the US who, in 1919, began promising investors he could double their money within 90 days.

The Divide: American Injustice in the Age of the Wealth Gap
by Matt Taibbi
Published 8 Apr 2014

Many of those tales revolve around the issue of naked short selling, a type of financial counterfeiting that allows short investors to artificially depress the stock prices of target companies. Whether naked short selling is a serious social contagion or meaningless conspiracy theory is a passionately debated topic on Wall Street, and to even broach the subject inspires strong emotions: right or wrong (and I believe wrong), in some quarters, if you bring it up at all, eyes roll automatically. One of the reasons I originally shied away from the Fairfax story was that it has a naked short-selling angle that makes some serious observers dismiss it out of hand as nutty conspiracy.

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This is why the big short sellers tend to be wired differently from other Wall Street players. These men (and they’re mostly men) live for the thrill of the chase and the high of conquest when the target of their short finally rolls over and dies. Chanos perfectly embodies that spirit. “I’ll always understand the Schadenfreude aspect to short-selling,” he said early in his career. “I get that no one will always like it.” By the early 2000s, just those four men—Loeb, Chanos, Cohen, and Sender—collectively managed tens of billions of dollars and exerted enormous influence on the daily trading flow of the New York Stock Exchange. And here’s what we know.

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“Gwynn was discharged from Morgan Keegan for violation of a firm policy relating to his apparent advance disclosure of his pending research coverage of Fairfax Financial Holdings,” a Morgan Keegan spokeswoman would say a full five years later, amid the chaos of September 2008. Although negative press and analyst reports and high volumes of carefully timed short selling can definitely exert downward pressure on a stock, and can even “waterfall” a company into collapse, a firm with a solid enough foundation can stick it out for a good long time. But the shorts didn’t have time. The game these major hedge funds were playing was a high-stakes, high-risk totaler Krieg where there’s no room for patience, compromise, or pyrrhic victories.

Toward Rational Exuberance: The Evolution of the Modern Stock Market
by B. Mark Smith
Published 1 Jan 2001

He profited from the 1837 market collapse through a technique he is credited with inventing—the “short sale” of stock. As practiced by Little, short-selling involved the sale of stock for delivery at a future date, often six to twelve months later. Little would gamble that share prices would fall in the interim, allowing him to buy back at a lower price the stock he would be required to deliver in the future. While this method of short-selling differs mechanically from the way in which short sales are transacted today, the objective is the same—to profit from a decline in the market. Needless to say, in a time of crisis such as the 1837 panic, a short-selling market operator who openly profited from the distress of others could be (and was) quite unpopular.

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Security should not rest on any one man.”14 In the years following 1907, muckraking journalism and progressive politics took their toll on the public’s perception of Morgan and Wall Street bankers and brokers. In 1912, Morgan and other leading financiers were summoned to testify before the Pujo Committee of the House of Representatives; the proceedings quickly took on the look of an inquisition. In response to questioning, Morgan said that while he did not approve of short-selling or speculation in the stock market, such practices were unavoidable if an active marketplace for stocks was to be maintained. The committee was much less willing than Morgan to condone the machinations of stock market operators. It concluded in its official report that “the facilities of the New York Stock Exchange are employed largely for transactions producing moral and economic waste and corruption.”

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As The Wall Street Journal put it, “Prices melted like the snows of the Pacific Northwest before the Chinook wind.” Among the big losers was Thomas Lawson, a part-time author and unsuccessful speculator. Lawson happened to be heavily invested in stocks when the peace rumor market break occurred; he cried foul, claiming that short-selling market operators had profited from improperly obtained official information. In his customarily lurid style, he declared, “The good old Capitol has been wallowing in Wall Street leak graft for forty years, wallowing hale and hearty.”4 Lawson already bore a grudge against Livermore, resulting from a business dispute a decade earlier.

The Investopedia Guide to Wall Speak: The Terms You Need to Know to Talk Like Cramer, Think Like Soros, and Buy Like Buffett
by Jack (edited By) Guinan
Published 27 Jul 2009

Investopedia explains Absolute Return Generally, mutual funds seek returns that are better than those of their peers, their fund category, and/or the market as a whole. This type of fund management is referred to as a relative return approach to fund investing. Absolute return funds seek positive returns by employing investment strategies that often are not permitted in traditional mutual funds, such as short selling, futures, options, derivatives, arbitrage, leverage, and unconventional assets. Alfred Winslow Jones is credited with forming the first absolute return fund in New York in 1949. Today, the absolute return approach to fund investing has become one of the fastest growing investment products in the world; it’s called a hedge fund. 3 4 The Investopedia Guide to Wall Speak Related Terms: • Mutual Fund • Return on Investment • Yield • Return on Assets • Total Return Accounts Payable (AP) What Does Accounts Payable (AP) Mean?

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Mutual fund units, or shares, are issued and typically can be purchased or redeemed as needed at the fund’s current net asset value (NAV) per share, which sometimes is expressed as NAVPS. Related Terms: • Closed-End Fund • Net Asset Value—NAV • Style • Diversification • Open-End Fund N naked shorting What Does Naked Shorting Mean? The practice of short selling shares that have not been confirmed to exist. Ordinarily, traders must borrow a stock or determine that it can be borrowed before they sell it short. However, as a result of various loopholes in the rules and discrepancies between paper and electronic trading systems, naked shorting continues to happen.

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A condition in which an investor has more long positions than short positions in a specific asset class, market sector, portfolio, or trading strategy. Investors who are net long will benefit when the price of the asset increases. Investopedia explains Net Long Many mutual funds are restricted from short selling; this means the funds are usually net long. In fact, most individual investors do not hold large short positions, making the net long portfolio a common and usually expected investing situation. A position that is net long is the opposite of a position that is net short. Related Terms: • Delta • Long (or Long Position) • Short (or Short Position) • Hedge • Overbought Net Operating Income (NOI) What Does Net Operating Income (NOI) Mean?

Electronic and Algorithmic Trading Technology: The Complete Guide
by Kendall Kim
Published 31 May 2007

Every member organization must file with the exchange all short positions on a bimonthly basis. The first is due within two business days after the 15th of each month, and the second is due the next business day after the last day of the month. The types of transactions that must be reported include short sells for equities and exchange traded funds. The key items of information required include 1. for NYSE: Bank Identifier, Symbol, Current Short Position; 2. for NASD: Bank Identifier, NASDAQ Security Symbol, Security Name, Current Short Position; 3. for AMEX: Bank Identifier, NASDAQ Security Symbol, Security Name, Current Short Position.

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The main reason why prime brokers carry out custody activity is to facilitate margin-lending 1 Adam Sussman, Managing Risk in Real-Time Markets, Tabb Group Report, February 2005, http://www.tabbgroup.com/our_reports.php?tabbaction¼4&reportId¼87. 153 154 Electronic and Algorithmic Trading Technology activities and the associated movement of collateral. Prime brokers earn their revenue through cash lending to support leverage and stock lending to facilitate short selling. It is increasingly common for prime broker clients to structure trades, utilizing synthetic products and other different asset classes. In the stock-lending business, prime brokers act as an intermediary between institutional lenders and other hedge fund borrowers. In financing equity role, prime brokers act in the role of an intermediary. 14.2 Prime Broker Services The services that a prime broker provides include the following (see Exhibit 14.1): 1.

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Prime brokerage has traditionally been dominated by niche players in the past, but larger banks are increasingly getting Strategy Do Not Use Low (<2.0:1) High (=>2.0:1) Aggressive Growth 20% 60% 20% Emerging Markets 20 50% 30% Equity Market Neutral 15% 50% 35% Event Driven 15% 60% 25% Income 35% 30% 35% Macro 10% 30% 60% Market Neutral Arbitrage 10% 25% 65% Market Timing 55% 35% 10% Multi-Strategy 10% 50% 40% Opportunistic 10% 60% 30% Short Selling 30% 40% 30% Value 20% 60% 20% Exhibit 14.2 Global hedge funds’ use of leverage. Source: Van Hedge Fund Advisors, Aite Group. 2 Sang Lee, ‘‘Shaking Up Prime Brokerage: Unbundling Securities Lending, Financing, and Derivatives Transactions,’’ Aite Group Report 200510171 (October 2005): 9–10. 

The Lost Bank: The Story of Washington Mutual-The Biggest Bank Failure in American History
by Kirsten Grind
Published 11 Jun 2012

Killinger didn’t want to talk to Paulson just about Cramer’s Mad Money—he also wanted to see if Paulson would help protect WaMu from naked short sellers. Short selling is essentially betting that a company will do badly: investors sell shares of borrowed stock (from a broker, for example) and then buy new shares to replace the old ones. If the new shares were bought for less than the original borrowed stock, the investor makes money. Naked short selling means that original shares aren’t borrowed. Either way, both forms of trading were driving down WaMu’s stock, which was now hovering around $3. Killinger thought Paulson could use his influence at the Securities and Exchange Commission (SEC) to help WaMu get on a list of 19 financial institutions temporarily protected from naked short selling.

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Killinger thought Paulson could use his influence at the Securities and Exchange Commission (SEC) to help WaMu get on a list of 19 financial institutions temporarily protected from naked short selling. The SEC had given JPMorgan, Bank of America, and Citigroup this privilege. “What’s interesting about that list,” noted the Seattle Post-Intelligencer at the time, “is one name conspicuous by its absence—Seattle-based Washington Mutual Inc., whose stock has been of more than passing interest to short-sellers.” Once Paulson came to the phone, Killinger asked him if he would help WaMu get on the list.

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See JPMorgan Chase Chase Home Finance, 104 Chicago, Illinois Jenne’s delinquent homeowner tour and, 171–72 WaMu branches in, 86, 108, 109 chief operating officer (COO), WaMu Pepper’s advice to Killinger about, 103–4 Rotella hired as first, 104–5, 106 Chrysler Financial, 235 Citigroup Dimon at, 230 as largest U.S. bank, 104 naked short selling protection for, 247 near failure of, 314, 314n OTS defense of oversight and, 317, 318 as potential buyer of WaMu, 3, 271, 282, 283, 289, 290, 298 TARP and, 315 Clark, Susie, 224 Clinton, Bill, 64, 113, 155 CNBC, 212, 267 CNN, 267 Coburn, Tom, 135 Cohen, H. Rodgin, 232, 233 Collateralized Debt Obligations (CDOs), 158, 295, 295n commercial real estate loans, 26–27 community banks: closure of, 319–20 Community Fulfillment Centers, WaMu, 142–43, 144–45, 144n, 159, 166 Community Reinvestment Act, 59 compensation Countrywide-WaMu competition and, 160 five emissaries–Killinger discussion about, 204–5 for fixed-rate loans/mortgages, 128, 129, 197 for Goldman Sachs board members, 164 for loan consultants, 117, 128–29, 188, 196, 197 at Long Beach Mortgage, 69–70, 78, 166–67 for Option ARMs sales, 117, 197 Pepper’s advice to Killinger about, 103–4 for real estate agents, 143 for salespeople, 140, 166–67 shareholders concerns about WaMu, 187–88 for subprime loans, 197 for WaMu board members, 164 for WaMu senior executives, 131, 187–88 See also specific person Congress, U.S.

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

In the past decade, disagreement models showed how differences in investor beliefs can influence financial markets through several channels: gradual information flow, limited attention, and heterogeneous views. Disagreement is especially important for explaining the high level of trading volume, but it also can help explain correlation or volatility risk premia as well as some cross-sectional patterns in equity returns. For example, high levels of disagreement and short-selling constraints together predict relatively low equity returns because overvalued stocks cannot be shorted and tend to be held by the most optimistic investors. Asymmetric information refers to situations in which one party is better informed than the other, leading to so-called principal–agent problems (including moral hazard, adverse selection, conflict of interest).

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It is not surprising, then, that paper profits tend to be most consistent in illiquid assets (e.g., small-cap stocks) or in trading styles that involve high turnover (e.g., short-term reversal). Faced with evidence of profitable trading strategies, it is always reasonable to question whether trading cost estimates (including both direct costs and market impact) have been understated. Fortunately, newer studies increasingly adjust profits for trading costs, financing costs, short-selling constraints, and other market frictions. While the limits-to-arbitrage literature explains why speculative capital is generally scarce, these adjustments explain why certain paper regularities are harder to exploit in practice than others. Only market-makers and other efficient low-cost traders can take advantage of such opportunities, and even then, only on a limited scale.

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All approaches appear to boost returns and Sharpe ratios but they also involve higher trading costs (and, likely, fees). 11.4 HEDGE FUNDS 11.4.1 Introduction Hedge funds (HFs) are pools of money run by HF managers, who face less regulation and have much greater flexibility than traditional managers, notably in their use of short selling, leverage, and derivatives. HFs face limited disclosure requirements, although transparency demands are growing both from customers and regulators. HF management contracts typically involve exceptional compensation arrangements with a large performance-related component; a 1.5% to 2% fixed management fee plus an incentive fee consisting of 20% of returns are the norm.

It's Better Than It Looks: Reasons for Optimism in an Age of Fear
by Gregg Easterbrook
Published 20 Feb 2018

Moscow’s desire to do so was not. Wall Street speculators try to short-sell stocks: today Russia and other authoritarian regimes are trying to short-sell democracy. Russia never will beat democracy in a fair fight. But dictatorship can short-sell those governments that protect freedom of speech and civil rights by planting rumors, inveigling citizens to question the legitimacy of free elections, and making democracy seem to be falling apart. Planting rumors to cause firms to appear to be falling apart is the technique of stock market short-selling: if the stock price then tumbles, the short-sellers benefit.

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Totalitarian governments are hoping the “stock price”—the reputation—of the United States will tumble, allowing them (keeping the metaphor) to snatch up assets at a bargain. If Russia did assist Trump in gaining the White House, the impact on the United States—a vain, incompetent president who is unprepared and acts befuddled, distracting his nation—was exactly what a short-selling strategy would seek. DURING THE SAME RECENT PERIOD when democracy expanded, two counterweights arose. One is the Internet. Initially, web access was the bane of dictators. George Orwell thought Oceania, his Nineteen Eighty-Four dystopia, would use electronics to prevent citizens from knowing what was really going on; during the initial spread of the Internet, it turned out electronics worked the other way around, allowing average people to know what’s happening.

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See war and combat Comey, James, 184, 217 Coming Apart (Murray), 89–90 communism, 66, 164–165 economy and, 174 industrial production and, 166–167 Communist Manifesto (Marx and Engels), 4–5 conservation of energy principle, 138 constitutions, 123–124 corruption, 178, 193 in Brazil, 176–177 construction contracts and, 181 internet and, 181–182 Nixon and, 179 in US, 179–181 Cowen, Tyler, 263, 264 crime capital punishment for, 116, 155–156 cash bail for, 115 cell phone and, 113–114 in Chicago, 112–113 Clinton, B., crime bill, 110–111 decline of, 109–111, 120, 137–139 global rates of, 106, 111 law enforcement and, 110–115 lead and violent, 111–112 media and, 105, 107 political campaigns and, 105–106 sentencing for, 115–116 violent, 106 See also terrorism crime-boss government, 182 The Culture of Narcissism (Lasch), 84 death air pollution and, 30 capital punishment, 116, 155–156 of law enforcement officers, 115 leading causes in US of, 24 by prescription drugs, 34 self-inflicted, 35 technology and workplace, 155 traffic deaths, 28, 142–143, 145–146 Deaton, Angus, 82 The Decline of the West (Spengler), 197, 198 declinism, 210, 285 academia and, 201 aging and, 203 anecdotes and, 218–220 Big Sort communities and, 222–223 blame and identity groups and, 218 blame-Washington attitude and, 207–209 Brexit referendum and, 204, 209, 217 freedom of association and, 222–223 history of panics of, 200 homogamy and, 223 Kaus on, 223–224 logic of, 92 luck and, 217–218 media and, 202 national bookkeeping switcheroo and, 208 natural selection and, 202 Obama and, 200–201, 221 opinionization of America and, 214–215 Plato and, 202–203 politics and, 84, 200–202, 206–209, 220–222 power and, 221 religious attendance and, 222 Sanders and, 84, 201–202 Sharkey on, 224–225 smartphones and, 212 Sputnik and, 200 victimhood and, 204–205, 217 Western civilization and, 201 See also Facebook and social media; Trump, Donald DeConto, Robert, 233–234 deindustrialization, 29 democracy China and, 170 creativity and, 167 Diamond, L., on, 165–166, 178, 183–184, 185–186 dictatorship and, 164–166 economy and, 167–168, 170, 173–174, 193 education and, 169–170 ethics and, 174 freedom of thought and, 168–169 internet and, 175–176 inventions and inventiveness in, 172–173 recession of, 165 short-selling strategy for, 175 slavery and oppression and, 174–175 Trump lying and, 184–185 World War I and, 170–171 World War II and, 171–173 See also corruption developing world positive change in, 17, 18 poverty in, 20, 280 sanitation infrastructure in, 30 traffic deaths in, 142–143 Diamond, Larry, 165–166, 178, 183–184 two-party duopoly for, 185–186 dictatorship, 193 Carnation Revolution and, 165 coup d’état and, 166 democracy and, 164–166 education and, 169 internet and, 175–176 World War II and, 171–173 dietary habits, of West, 25, 116 disability, 249, 257 education and, 37 veterans and, 36–37, 258 disease in Africa, 25, 39 avian and swine flu, 22 chemical and biological weapons and, 26–27 Ebola, 23, 25 films and, 28 influenza pandemic, 27–28 malaria, 39 media negativity and, 24–25 MERS, 23 mosquitoes and, 39 news coverage and, 24–25 obesity as, 5, 26, 35 smoking and, 24 unstoppable contagion, 27, 28 vaccinations and, 25, 39–40 weight gain and metabolic syndrome, 25–26 See also public health Dodd-Frank Act, 92–93 Dust Bowl, 5 dynamism catastrophism and, 20–21, 221, 283 food production and, 21 East of Eden (Steinbeck), 17–18, 58, 134 Easy Rider (movie), 198, 199 Ebola, 23, 25 echo chamber, 215–216 economy, 209–210 bulk transportation and, 80–81 buying power and, 85–86, 87, 246, 249 Clinton, H., on, 67 coal mining and, 61, 76–77, 233 collapse anxiety and, 68 communism and, 174 comparative advantage and, 79–80 control and, 65–66 currency and, 69 democracy and, 167–168, 170, 173–174, 193 Dodd-Frank Act and, 92–93 education and, 169 fascism and, 66 Feldstein on, 91 globalization and, 82 golden age of, 69–70 Great Recession and, 64, 68, 97 inequality and, 84–85 inflation and, 87 infrastructure and, 93–95 Keynes on, 98–99 marriage and, 267, 268 media negativity and, 77, 79, 87–88 modern monetary theory and, 96 Panasonic and, 68–69 paper mills and, 78–79 Piketty on, 84–85 predictions and, 64 pretax income and, 84–85, 91 regulations of, 92–93 retirement economics, 31, 273–274 slow growth and, 90–92 Soviet and American, 167 state pension accounts and, 97–98 trade boosting, 79, 245–246 Trump and, 70–71 US domestic production and, 77–78 US GDP and, 84, 90–91 war and, 93, 132–134 Washington Consensus and, 66–67 Western living standards and, 88 See also market economy; middle class, US; national debt, US education, 280 book reading and, 271 in China, 170 college as, 269–271 democracy and, 169–170 disability and, 37 economy and, 169 immigrants and, 269–270 jobs and, 89–90 longevity and, 37–38 marriage and, 267 public school system and, 38, 269 skilled trades and, 270 wage and, 89–90 The Education of Henry Adams (Adams), 197, 198 Ehrlich, Paul, 5 elections.

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

Long/short equity The major drag on performance has been aggressive sector rotations between financials and commodities. Long/short funds tend to invest in positions based on fundamentals, which have succumbed to indiscriminate selling. During 2008 many governments introduced temporary restrictions on the short selling of financial stocks. At the time the cost of borrowing such stocks to short sell had increased dramatically, in many cases making the trade prohibitive. Later on in the year, managers began to see shorting opportunities in consumer-related stocks. Due to the volatile environment, managers reduced their trade sizes, believing that this would not have a negative impact on returns as dispersion was so high.

…

During 2008, managers took profits from longer-term themes, such as the rise in commodity prices and allocated more capital to shorter-term trends. Convertible bond arbitrage Poor performance has been the result of credit spreads widening and considerable distressed sell off as investors took flight to quality assets. The strategy involves purchasing the convertible bond and short selling the underlying equity. The restrictions on short selling in financials also impeded this strategy. Event driven The number and size of global mergers and acquisitions were significantly down during 2008 compared with the preceding years. This has meant that the opportunity set for this strategy was reduced. Deal spreads remained high, to compensate for the risk of deals failing to complete.

Power Play: Tesla, Elon Musk, and the Bet of the Century
by Tim Higgins
Published 2 Aug 2021

New York magazine profiled him in a lengthy story, full of anecdotes about his tussles with Goldman Sachs and others, calling him the “Catastrophe Capitalist.” Others likened him to the LeBron James of the short-selling world. And as his reputation grew, the mere announcement that he was taking an interest in a company with a short-sell position could roil a stock. In his zeal, Chanos could strike a righteous tone about his place in the ecosystem of Wall Street investing. He told a reporter he was “convinced to the deepest part of my bones that short-selling plays the role of real-time financial watchdog. It’s one of the few checks and balances in the market.” By 2015, however, his firm was facing new challenges.

…

Belief created the vision; the vision would create a market; the market would create cash; and cash would create cars. He just had to do it on an unimaginable scale, and do it fast enough to stay a car’s length ahead of competitors, creditors, customers, and investors betting against the company through a process called short selling that could pay handsomely if Tesla’s stock plunged in value. It was, he knew all too well, a dangerous race. Or, in his darker moments, the ultimate game of chicken. * * * — In June 2018, a little over two years after Musk’s glitzy reveal of the Model 3, I visited him deep inside the cavernous Tesla Inc. assembly factory half an hour outside Silicon Valley.

…

He marveled at how Musk had forged a narrative of himself as a great tech visionary—landing rockets, disrupting industries, making the world cleaner. “This guy—he’s a prairie preacher,” Fossi said. “He’s got the revival tent up and these people are in it.” Since Tesla had gone public, there had been those who questioned Musk’s plans. The stock began attracting the kinds of investors who used market maneuvers such as short selling to bet against Tesla—people who judged that its stock was overvalued and would ultimately fall in price to match its real value. A typical investor buys a company’s stock for a price of, say, $100 a share, with hope that the value will increase over time, to, say, $105, and can be sold for a $5 profit.

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

They knew what was coming. Regulators in the United States were now playing a desperate game of catch-up, scrambling to do what little they could, even if that meant keeping investors in the dark. Lehman Brothers’s chief executive, Dick Fuld, panicked by David Einhorn’s famous short-selling campaign against his firm, persuaded the SEC to restrict short selling of large financial firms. A couple of months after Fannie Mae and Freddie Mac raised shareholder capital, Congress gave the Treasury Department new powers to take over the imploding mortgage behemoths. Those powers came not a moment too soon: Fannie and Freddie were placed in conservatorship by the Treasury Department in early September, stripping away once and for all the private sector fig leaf of what had always been a massive government housing subsidy scheme.

…

With Viniar’s orders to “get closer to home” ringing in his ears, Sparks had to find a mechanism to stop his growing short positions from getting too big. “Fab,” as everyone called him, had a marketing pitch: he proposed “renting” the Abacus platform to hedge funds like Paulson & Co. After overcoming opposition from Sparks’s traders, who wanted to earmark the Abacus platform for their own short-selling, in March 2007 Tourre arranged a synthetic CDO called Abacus 2007 AC-1 for the purpose of allowing Paulson to short a billion dollars worth of subprime. The detail that landed Goldman and Tourre in the SEC’s gunsights was a minor tweak to the static Abacus template: Tourre brought in a monoline insurance company called ACA to select the specific subprime bonds in the CDO while allowing Paulson extensive influence over the selection.

…

This department found it could earn extra money for shareholders by providing a service to Wall Street called securities lending. Traders at banks and hedge funds like to borrow stocks and bonds (for a fee) in order to sell them short. In other words, they speculate against falls in price, then buy the securities back again and return them to their rightful owners. Some pension funds and insurers object to short selling and refuse to lend their securities out, but most were happy to comply in return for a few points in fees.17 In the mid-2000s, Win Neuger, who ran the global investment group for AIG, had the bright idea of taking this notion further. Normally, securities lenders park the cash collateral received for lent securities in the safest possible Treasury bills or government bonds so that they can redeem the loans quickly, if necessary.

The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance
by Ron Chernow
Published 1 Jan 1990

He said short sellers were preventing an economic rebound and warned that unless Whitney curbed them, he would ask Congress to investigate the Exchange and possibly impose Federal regulation. Whitney refused to admit any danger in short selling. Privately Morgan partners mocked Hoover’s obsession as absurd and fantastic, but they couldn’t dissuade him from his vendetta. Although fearing that public hearings would dredge up “discouraging filth” and sabotage recovery efforts, in 1932 Hoover asked the Senate Banking and Currency Committee to start an inquiry into short selling. Wall Street bankers were so upset that Lamont lunched at the White House with Hoover and Secretary of State Stimson, trying to spike the inquiry.

…

“The consequences of such an economic debauch are inevitable,” said the Philadelphia Fed governor. “Can they be corrected and removed by cheap money? We do not believe that they can.”9 By the second half of 1930, the postcrash calm was gone. That fall, Hoover complained to Lamont about bear raids, short selling, and other unpatriotic assaults against national pride. The following year would be the worst in stock market history. While the Fed had assumed responsibility for the health of the entire financial system after the 1929 crash, the House of Morgan still played a part in specific, smaller crises.

…

Maybe they have settled German reparations but they did it the worst damned way they could.”14 He wouldn’t extend his one-year debt moratorium and rejected French and British proposals for deferring upcoming payments; he forced France to default. So on the eve of Hitler’s advent, the Allies were squabbling over moldy financial issues that had bedeviled them for years. The Morgan-Hoover feud over debt was mild compared with their debate over short selling on Wall Street. Moody and isolated, taciturn and stony-faced, Hoover now shared the average American’s view of Wall Street as a giant casino rigged by professionals. He saw the stock market as a report card on his performance, and it showed consistently failing grades. He came to believe in a Democratic conspiracy to drive down stocks by selling them short—that is, by selling borrowed shares in the hope of buying them back later at a cheaper price.

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

In that same period, in late September 2008, both Goldman CEO Lloyd Blankfein and Morgan Stanley CEO John Mack lobby the government to impose restrictions on short sellers who were attacking their companies—and they get them, thanks to a decision by the SEC on September 21 to ban bets against some eight hundred financial stocks. Goldman’s share price rises some 30 percent in the first week of the ban. The short-selling ban was galling for obvious reasons: the same bank that just a year before had bragged about the fortune it had made shorting others in the housing market was now getting its buddies in the government to protect it from short sellers in a time of need. The collective message of all of this—the AIG bailout, the swift approval for its conversion to bank holding company status, the TARP funds, and the short-selling ban—was that when it came to Goldman Sachs, there wasn’t a free market at all. The government might let other players on the market die, but it simply would not allow Goldman Sachs to fail under any circumstances.

…

Again, just like Cassano, he was going to take a business that should have and could have been easy, almost risk-free money and turn it into a raging drunken casino. Neuger’s unit was involved in securities lending. In order to understand how this business makes money, one first needs to understand some basic Wall Street practices, in particular short selling—the practice of betting against a stock. Here’s how shorting works. Say you’re a hedge fund and you think the stock of a certain company—let’s call it International Pimple—is going to decline in value. How do you make money off that knowledge? First, you call up a securities lender, someone like, say, Win Neuger, and ask if he has any stock in International Pimple.

…

You then go out and buy a thousand shares in the company for $7,500. Then you go back to Win Neuger and return his borrowed shares to him; he returns your $10,000 and takes the stock back. You’ve now made $2,500 on the decline in value of International Pimple, less the $200 fee that Neuger keeps. That’s how short selling works, although there are endless nuances. It’s a pretty simple business model from the short seller’s end. You identify securities you think will fall in value, you borrow big chunks of those securities and sell them, then you buy the same stock back after the value has plummeted. But how does a securities lender like Neuger make money?

Ugly Americans: The True Story of the Ivy League Cowboys Who Raided the Asian Markets for Millions
by Ben Mezrich
Published 3 May 2004

“Picking out losers,” Carney expounded. “Finding companies that are on their way down, betting against them, then helping them along. It can get fairly rough, as you expose faults to help the process along.” It sounded malicious, but Malcolm guessed it was more complicated than Carney made it sound. Short selling was most likely a trading technique like any other. Instead of betting that a company’s stock would go up, you were betting that it would go down. The idea that you actively tried to expose faults to make the company’s stock go down seemed a bit malevolent, but was it really different from putting out press releases lauding a company’s positive features to get the price up?

…

At first, the meetings tended more toward chaos than order, with everyone throwing out ideas at once. As Carney had explained during their short, two-day orientation before ASC first opened its doors, at a hedge fund, there was only one bottom line: profit. No deal was out of bounds, no position too crazy. ASC could buy or short-sell simple equities such as stocks and bonds, trade index futures, trade commodities such as the yen, precious metals, pork bellies, even orange juice. Or they could go after more exotic positions: real estate, rare art, IPOs. There was no one to answer to, no forms to file or permission to be granted.

…

So far, the most dominant among them in terms of profit-making ideas had been Steve Townsend. Of the dozen ideas he’d put forward over the past six months, Carney and Bill had okayed three of them: an arbitrage scheme involving Indonesian municipal bonds that had already earned ASC three million dollars; a short-selling position in a Singapore-based textile firm that Townsend had rightly determined was hugely overvalued, a position that had made ASC another million; and a quick “in and out” trade involving a South Korean hardware chain, which was expanding its outfit into Vietnam. Townsend had been riding high on his success, and since he’d sold the South Korean position for a four-million-dollar gain, he’d taken to sitting at the seat right next to Carney, tanned arms crossed against his chest, a superior look flashing from his bright green eyes.

Lying for Money: How Fraud Makes the World Go Round
by Daniel Davies
Published 14 Jul 2018

And trade credit is both a necessary administrative convenience, and an opportunity for all kinds of misbehaviour, as readers will have noticed. In the case of the stock market, buying a share that you don’t have enough money to pay for is called ‘trading on margin’, and selling a share that you don’t own is called ‘short selling’. In both cases, the expectation is that you will be able to scrounge up either the cash or the share before the ‘settlement date’. You scrounge up cash by borrowing it or selling something else, of course, but how do you scrounge up a Piggly Wiggly share? The answer, and the source of Clarence Saunders’ misfortunes, is that the brokerage community maintain a pool of shares available to be borrowed,* and make them available to scrounge up by people who have made short sales.

…

Leslie Payne once said* that, if you have no convictions or bankruptcies on your record, that ‘everyone gets one free shot at a long firm’, and I’d be lying if I said I’d never daydreamed. I have two friends who spend a lot more time than me looking at the subject, though, and they don’t share this outlook at all. One is a hedge fund manager who augments his returns by short-selling the shares of fraudulent stock promotions, and the other is a computer expert who writes programs to trawl through email archives and to catch online poker cheats. Both of them independently confirm something which you can check up yourself by randomly choosing a first-person account from the bibliography; the more time you spend trying to get inside a criminal’s head, the less attractive you find them.

…

A. 201–3,205 Henry VIII 216 high-net worth investors tendency to have time on hands 109 tax strategies of a proportion of 266–8 Hippocratic Oath 134 hire purchase scam (Leslie Payne) 36, 39–40 homomorphism 209, 212 Hooley, Ernest ‘The Millionaire’ 230 hotel bills 37 House of Commons 1 Howe, Sarah 90, 116–19, 222 HSBC 188, 189, 280 Hudson Oil 249, 251 Humphery, John Stanley 228 I IBM 64–8 Iceland 218–22 Inca Empire 226–7 Incentives 13, 22, 62, 74, 115, 135, 159, 165, 174, 185–6, 205, 210 incidental fraud vs entrepreneurial 213, 215, 287, 288 Infinity Game 92–9 information 24, 71, 199–208, 211–15, 238 control of by fraudsters 41, 65, 71, 115, 173 insider, securities fraud 23, 239–42, 260 inheritance 117, 217, 218–22, 235, 266 insider dealing 23, 106, 129, 241–43, 260 insurance 36, 39–40, 65, 163–4, 171, 225, 228 medical 74–7, 84 Payment Protection Insurance (PPI) 187–97 insurance scam (Leslie Payne) 40–41 International Reply Coupons see Ponzi, Charles investors 1, 16 in OPM leases 65–7, 69–71 Charles Ponzi’s 86–9 hedge fund 96, 104–9, 113 in pigeons 100, 103 institutional 104 nineteenth century female 118–20 mining 126–30 reliance on accounts 142–54 expectations of UK banks 188 Victorian 228, 231 Retail 240–43 in Piggly Wiggly 256–61 IRS vs UBS 263–4 Israel, Sam see Bayou Capital drug habit of as potential indicator something was wrong 116 J Jehoash (high priest) 217 John Bull 230 K Keating Five 182 Keating, Charles 177–83, 214 Kennedy, John Fitzgerald 61 Kerviel, Jerome 165 King, Don 163 Knights of Industry 234, 237 Kolnische Volkszeitung 232, 234, 236, 237 KPMG 150 Kray, Ronnie and Reggie 26–7, 31, 36, 39, 41 Kutz Method 152–3 KYC (know your customer) 281 L Lab fraud anaemia 74 Ladies’ Deposit Bank (Boston) 116–19 lawyers 19, 27, 33–4, 39, 45, 71, 115, 117, 161, 180, 182, 194, 196, 225, 267, 271, 272, 281 (they’re usually in the background even when not specifically mentioned) professional qualifications of 114 extreme expensiveness of 234 leasing tax advantages of 64 see also OPM Leasing importance of residual value 66 accountancy issues 152 Leeson, Nick 17, 165–73, 285 Lehman Brothers collapse 13 relationship with OPM Leasing 65, 71 Lehnert, Lothar 235–7 Lernout & Hauspie 150 Let’s Gowex see Gowex letterhead 31, 70, 80, 122 Levi, Michael 81, 216, 283 Levy, Jonathan 224 libel 77, 236–8 LIBOR 1–4, 12–16, 193, 205, 215, 244 Liman & Co 235–6 limited liability 34, 225, 231 Lincoln Savings & Loan 177–8, 180, 182–3 livestock 100 Livingstone, Jesse 259 Lloyd’s of London 164, 225 Lomuscio, Joe 59 Long firms 21, 23, 27, 29, 35, 41–2, 43–50, 61, 63, 72, 73–5, 77, 79–82, 96, 141, 142, 163, 164, 212, 224, 283, 284 ‘sledge-drivers’ 232–4 against government 271–4 Lucifer’s Banker 263 M MacGregor, Gregor 5, 8, 9, 17, 77, 78, 214 dubious knighthood of 7, 162 military career 7 previous frauds 18 Madden, Steve 147 Madoff, Bernard 96, 104–5, 113 Mafia 41, 253 Mahler, Russ 249–53 management scientific 19, 200, 206–12, 215 risk management 212–13, 287 strategic 248 public sector 264 marginal cost pricing 248 Marino, Dan (fraudster) 107–9, 113, 115 Marino, Dan (quarterback) 107 maritime capitalism 34, 224–6 market corner 259 market crimes 23, 24, 58, 194, 239–62, 271, 282, 289 markets general characteristics of 23, 197, 201–4, 208, 278, 289 financial 3, 4, 8, 13, 26, 58–60, 99, 100, 107–8, 129, 132, 142–5, 147–8, 149, 150–56, 161, 163, 166, 171–2, 176, 195, 230–31, 239–40, 242–4, 256–61 pharmaceutical, ‘grey’ 136–7 drugs, illegal 43–50 prime bank securities 110–11, 184 real estate 179–80 supermarkets 213, 255 Marx, Groucho 66 Marx, Karl 84, 232, 247 McGregor, Ewan 165, 173 McVitie, Jack ‘The Hat’ 26, 41 Medicare 73–6,134–5, 199, 289 Merchant of Venice 34 Merck Pharmaceuticals 138–40 Michaela, Maria 215, 222 military planning 204, 207, 211 Milken, Michael 177, 183 Miller, Norman 52 mis-selling 194–6 money laundering 278–82 Monopolies Commission (UK) 247 mortgages 38, 77, 101, 175–9, 188, 191, 194, 215, 238 multi-level marketing 94–5 N New England Journal of Medicine 139 New Zealand 9, 172, 241 newspapers 9, 125, 152, 230, 237, 252, 262 Nichols, Robert Booth 110–12 Nikkei index 170–71, 173 nobility Scottish 7 phony scottish 5–9, see Gregor MacGregor phony 223 North Wales Railway Company 229 notaries 114, 125, 133 indiscriminate stamping of documents by in 1920s Portugal 121–2 O ODL Securities 112–13 OECD 268 oil recycling 249–54 OODA loop 208 operations research 204, 208–10, 289 OPM Leasing 63–72 snowball effect of interest expense 98 accounting trick 152–3 options markets 163–4, 171–2 Optitz, Gustav 235–7 Opus Dei 53, 57 Original Dinner Party 92 Other People’s Money 63, 285 P Paddington Buys A Share 20, 43 Parmalat 155 Patsies see fronts Payment Protection Insurance (PPI) 187–97 Payne, Leslie 26–8, 30, 33–6, 39–42, 67, 73, 98, 163, 237, 283 petrol stations 190, 247–8 pharmaceutical industry 133–41 track and trace 136 Philadelphia Savings Fund 70–71 Pigeon King International see Galbraith, Arlan pigeons, racing 100–103 Piggly Wiggly 255–61 Ponzi, Charles 84–90, 96, 109, 116 trial of 90 takeover of Hanover Trust 88–9 launch of scheme 86 Portuguese Banknote Affair 120–25 Powers, Austin 263 Poyais 5–9, 15, 78, 121, 162, 215, 219, 287, 297 prime bank securities 110–13, 122, 184 Prince 135 Prince Albert 228 Princess Caraboo see Baker, Mary Princesses 6, 223 Principles of Scientific Management 206 Prison 18, 61, 112, 119, 125, 173, 208, 252, 270 debtor’s 34, 225 private equity 144 psychology 17, 87 public choice theory 210–11 pump and dump 147 pyramid schemes 91–5, 116, 184, 222 Q Quakers 118 quality control 184, 207, 213–15, 287 Quanta Resources 251–2 Quarterly Review 162 Queen Victoria 228 Queenan, Joe 10 Qwest 150 R Rabelais, Francois 120 Railway Mania 176, 231 Ranbaxy Laboratories 137 Reagan, Ronald 174–5, 251 real estate 89, 177–81, 214, 281 Reddit 48 regulators financial 2, 4, 14, 18, 99, 165, 177–83, 194–5, 240, 260–61, 280–81, 289 softness of in 1960s London 40 environmental 250–51 pharmaceutical 136, 137, 140 Reuschel, Rollo (Stanislaus Reu) 232–8 libel case 237 Richmond-Fairfield 107 Robb, George 228 Rockwell Industries 66–71 Rogers, Will 283 rogue traders 98, 165–73, 215 Royal Canadian Mounted Police 129 S salting (mining fraud technique) 127 Sarbanes-Oxley 194, 202 Saunders, Clarence 255–61 Savings and Loans 174–84, 185, 196, 285, 289 economic theories of failure 174 business model 175 settlement, securities 60, 107, 108, 112, 163, 257, 261 Sherman Antitrust Act 246 shipowners 10, 116, 117, 164, 224–6 ships 164, 207, 221, 224–6 US Navy 89, 249 short firm 73–5, 93 short selling 147, 258–9, 261, 283 shotgun/rifle technique 76–7, 134 signatures, forged 67, 123 Silk Road (online market) 44, 47–8, 50 simplified summary which hopefully captures the important structural features see homomorphism Sketch of the Mosquito Shore 8, 162 Skilling, Jeff 17, 142, 153 slaves 34, 219–21, 225 ‘sledge-drivers’ 232–8 SLK Securities 108, 115 Smith, Adam 11, 213 on cartels 246 snowball effect see compound interest societies, high and low trust 10, 16, 62, 125, 166–7, 264, 287 Soviet planning 204, 208, 227 Sparrow, Malcolm 74, 76 St Joseph (fictitious city) 5 stock exchanges Alberta 11, 129 Toronto 129 Vancouver 11, 126 London 9, 117 New York 59–60,147, 228–31, 256–61 Chicago 59–60, 256 Singapore 170–72 Osaka 170 Tokyo in general 142–5, 147, 163–4,241–2 NASDAQ 240 Strangeways, Thomas 162, see also Gregor MacGregor Strathclyde Genetics see Galbraith, Arlan Stratton Oakmont 145–8 Sufficient Variety, Law of 209 Sullivan, Scott 154 Susquehanna River 251, 252 T tacit knowledge 202–3 Tarantino, Quentin 105 tax 32, 64, 69, 98, 155, 159, 177, 191, 263–71 value added see VAT Taylor, F.

The Rise of the Quants: Marschak, Sharpe, Black, Scholes and Merton
by Colin Read
Published 16 Jul 2012

In the ensuing modeling, Black and Scholes neglected taxation and transactions costs, and assumed an investor has perfect access to borrowing at the risk-free interest rate. One strategy they proposed and analyzed was what they called the zero-beta portfolio. Their idea was to The Black-Scholes Options Pricing Theory 111 hold low beta stocks long that they predicted would perform better than the market. The short selling of high beta stocks should then allow the purchase of the low beta stocks, with some profit left over and with very little or, ideally, zero risk. This higher risk-free return could then be used to buy and sell along a Markowitz security line with a higher risk-free return intercept. An investor could then earn a superior risk-return trade-off for any level of desired risk through leverage purchases of the market portfolio.

…

His risk arbitrage strategy was successful, and his early successes induced him soon after his arrival at graduate school at the California Institute of Technology in the West Coast university town of Pasadena to hang out in the early morning at brokerage houses in anticipation of the market opening in New York. His trades, first in buying stocks, then in buying and shorting (selling stocks borrowed by the trader) stocks, and then in the increasingly sophisticated instruments of warrants (stock options issued by the corporations themselves), options, and bonds, taught him about the market and helped put himself through school. Merton also engaged in the somewhat risky practice of investing on margin.

…

These differences in liquidity may be slightly more pronounced even between two trading centers located in different time zones and thousands of miles apart. Long Term Capital Management developed a strategy to capitalize on these differences. It could even do so with almost no invested capital, by buying the thinly traded slightly aged bonds and at the same time short selling the new issue bonds to raise the funds. This way, it could afford to trade very The Nobel Prize, Life, and Legacy 169 large volumes of each, and make perhaps only pennies per bond, but over millions of bond contracts. These strategies were wildly successful at first. Because Long Term Capital Management had to front little money on these covered transactions, its equity grew to almost $5 billion within four years and it had borrowed to purchase contracts worth almost $130 billion.

Woke, Inc: Inside Corporate America's Social Justice Scam
by Vivek Ramaswamy
Published 16 Aug 2021

Early in 2021, a group of traders on a Reddit forum called WallStreetBets realized Wall Street might have made a mistake. As it turns out, hedge funds had short-sold more shares of struggling video game retailer GameStop than actually existed. Short-selling means borrowing a share of a company and then selling it in the market. It’s a way of betting against a stock: the short-seller makes money when the share price of a company goes down, allowing the short-seller to buy back the share at a lower price and return it to the lender. Predictably, short-selling isn’t very popular with the public for the same reason that predators and scavengers aren’t popular in nature, but in reality they all have proper roles to play in their respective ecosystems: predators prevent rodent infestations, scavengers clean up carcasses, and short-sellers help prevent asset bubbles.

…

But like all investors, short-sellers are often wrong: they lose a lot of money when a company’s share price goes up. The Reddit crowd realized that if they just bought a ton of GameStop shares, they could drive the price up by so much the short-sellers would be forced to buy shares at the higher price to close their positions (that’s how the mechanics of short-selling work) and would have to pay whatever price the Reddit guys named. That’s called a “short squeeze,” and it worked wonders. GameStop’s share price skyrocketed. Hedge funds bled. The hedge fund Melvin Capital, led by onetime star trader Gabe Plotkin, was down over 50 percent in the month of January as a consequence—a staggering loss for a fund of its kind.

…

At the end of the day, it isn’t rocket science: if you prevent people from buying a stock and only permit them to sell, the stock will go down. And that’s exactly what happened. Of course, Reddit traders were still free to use brokerages other than Robinhood to buy stocks if they wanted to—including in a coordinated fashion. But this is where wokeness comes in. Just hours before the Thursday short-selling onslaught, the online chat company Discord shut down a WallStreetBets discussion server with 250,000 members over allegations of “hate speech”—WallStreetBets moderators claimed the entire Discord server was banned because one user had managed to bypass a filter for vulgarity.29 Simultaneously, Facebook shut down a 150,000-strong discussion page for Robinhood traders over allegations of “adult sexual exploitation,” which it refused to substantiate.30 It was a ridiculous claim even on its face.

Adaptive Markets: Financial Evolution at the Speed of Thought
by Andrew W. Lo
Published 3 Apr 2017

But if you happen to be a big shareholder of Koffee Meister stock (which may explain why you spent so much time and effort testing the ’Cino Bambino), your decision to sell may well hurt the share price. In fact, even if you didn’t own any shares of Koffee Meister, you might still want to bet on the information you’ve acquired. You can do this by short-selling Koffee Meister. Short sales are a little more complicated than the typical stock trade, but not much more. You borrow shares of Koffee Meister in order to sell them at a higher price, buy the shares back at a lower price (you hope) when you’re proven right, return the borrowed shares to the lender, and pocket the difference between the price you received for selling them and the price you paid to buy them back.

…

Now, let’s suppose a hedge fund has $10 million of capital. Thanks to the magic of leverage—which is just a fancy term for borrowing—the hedge fund can purchase $30 million of Apricot stock at a three-to-one leverage ratio. This will greatly boost the fund’s return if the Apricard is a success. But the hedge fund can also simultaneously short-sell $30 million of stock in BlueBerry Devices, Apricot’s main competitor, and the producer of the BlueBerry, a leather wallet the size of a clutch purse that physically stores up to 25 credit cards, but has an excellent keyboard. The hedge fund is betting that the Apricard will make the BlueBerry obsolete, causing its stock price to decline.

…

If the hedge fund’s bet goes wrong—maybe the Apricard technology has a flaw that allows hackers to steal millions of credit card numbers—and Apricot suffers a 10 percent loss while BlueBerry benefits from its competitor’s woes and enjoys a 10 percent gain, the hedge fund will lose $6 million, wiping out 60 percent of the fund. The power of leverage and short selling cuts both ways. There are currently over nine thousand hedge funds worldwide, managing more than $2 trillion in assets, and an unknown number of hedge fund–like entities at proprietary trading desks and the like. In fact, the hedge fund industry is more like twenty to thirty cottage industries, each with its own particular specialty.

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

Nonprofessionals are astonished as to how banal all investment strategies are when stripped of the marketing gloss that is used to sell them. A long-short strategy is where the investor buys something they expect to go up and short sells something that they expect to go down. It is called market neutral or relative value. Long-short is differentiated from long only where the investor can buy things that presumably they think will go up. Short selling involves selling something that you don’t own but hope to buy back at a lower price when the price goes down. You can sell tickets to a sought-after concert by the latest hot band for $200 for delivery in 1 week.

…

The value of the option must be determined by the value of the stock. As the stock price changes, so should the price of the option. If a stock price moves from $10 to $11, then the price of the call option should also increase. The relationship allows the setting up of risk-free portfolios where you buy a call option and at the same time short sell a share. If the stock price goes up then the value of the call option increases but you suffer a loss on the shares, as you have to buy them back at the higher price. By adjusting the ratio of options to the shares, you can construct a portfolio where the changes in the value of the options and shares exactly offset, at least, for small movements in the stock price.

…

In the early 1990s and again in the early 2000s, equity markets were moribund and interest rates were at record lows. Forced to look elsewhere, investors increased investment in hedge funds. Suspicious of new products, traditional institutions reluctantly entered new markets to boost declining returns. Not allowed to buy structured securities, short sell, leverage or use derivatives, conservative funds gave money to hedge funds that could. The new mantra was “hedge funds for everybody.” Style Gurus Hedge fund managers argued that only they knew what they do, reminiscent of a prospectus from the 1920s: “the credit and status of the company are so well known that it is scarcely necessary to make any public statement.”6 At a 2009 Congressional Inquiry, Citadel’s Ken Griffin argued against disclosure by comparing it to “asking Coca-Cola to disclose their secret formula to the world.”7 One manager explained his investment strategy as throwing light on “fragmented information” and “opaque” track records.

Big Debt Crises
by Ray Dalio
Published 9 Sep 2018

–New York Times July 15, 2008 Stocks Fall Back After Early Gains on Rescue Plan “The United States treasury secretary, Henry Paulson Jr., and the Federal Reserve chairman, Ben Bernanke, acted after the shares of Freddie Mac and Fannie Mae came under enormous selling pressure last week.” –New York Times July 16, 2008 S.E.C. Unveils Measures to Limit Short-Selling “The Securities and Exchange Commission, under pressure to respond to the tumult in the financial industry, announced emergency measures on Tuesday to curb certain kinds of short-selling that aims at Fannie Mae and Freddie Mac, as well as Wall Street banks.” –New York Times July 19, 2008 Freddie Mac Takes Step Toward Raising Capital “The nation’s two beleaguered mortgage finance giants continued to win back investors on Friday, as Freddie Mac, the smaller of the two companies, took a crucial step toward raising capital.

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That raised interest rates and tightened liquidity, bringing on the most painful period of the depression, lasting until FDR took the US off the gold standard eighteen months later to devalue the dollar and print money. Stocks had sold off during the run on sterling. The Dow finished September down 30.7 percent, its largest monthly loss since the crisis began. On October 5, the market fell 10.7 percent in a single day. Amid the chaos, the NYSE once again banned short selling in a classic attempt to slow the sell-off.126 While previously “safe” treasury bonds had rallied as stocks crashed in 1929 and 1930, they were now selling off along with stocks, reflecting the US balance of payments crisis. The yield on long-term US treasuries rose to 4 percent, nearly 1 percent above their midyear lows.

…

For eight days there have been no national bank failures, a new record for many months, while there has been an appreciable decline in failures of other member and State banks for ten days.” –New York Times February 27, 1932 Credit Bill Voted; Hoover Signs Today; Not a Dissenting Voice Is Heard In Congress Against Passage of Bank Aid Measure –New York Times March 2, 1932 Senate Body Acts for Broad Inquiry on Short Selling; Banking Committee Will Go Beyond Hoover Idea in Stock Exchange Investigation “An investigation of the New York Stock Exchange was recommended today by the Senate Banking and Currency Committee. A subcommittee, headed by Senator Walcott, Republican, of Connecticut, immediately began drafting a resolution requesting authority for such an investigation from the Senate.”

Be Your Own Financial Adviser: The Comprehensive Guide to Wealth and Financial Planning
by Jonquil Lowe
Published 14 Jul 2010

A big advantage of introducing options into an investment strategy is the opportunity to make money from falling as well as rising prices and markets, whereas conventional strategies rely on markets rising. Complex investment funds While most investment funds tend largely to use conventional buy-andhold strategies, there is a growing tendency to use derivatives and other techniques, such as short selling, to boost returns. Short selling means selling shares you do not own with the hope of buying them back later at a lower price. Private investors are barred from short selling, but professional investors can borrow shares from other large investors (in return for a fee) in order to sell and buy back later. You need to be aware when these strategies are being employed because they have implications for the risks you are taking on when you invest.

…

As long as the stock market increases by a target amount, your capital is returned in full. If it rises by less, only part of your capital is returned and, in effect, the extra income you have received will have been funded out of your capital. Hedge funds Hedge funds use gearing, derivatives, short-selling and a wide range of other techniques to pursue a variety of strategies. Types of hedge fund include: OO Absolute return funds. These funds aim to produce either a target level of return or to beat the return on savings accounts, whether stock markets are rising or falling. A variety of techniques may be employed, for example, the fund may invest in corporate bonds and use put options to protect against a fall in their prices.

…

Most funds do not claim to meet their target month by month, but over an average period of a year or more. OO 130/30 funds. These funds are using something similar to leverage in order to magnify the gains from successful buy-and-hold investments. However, rather than borrowing to invest, the fund short sells investments to the value of 30 per cent of the fund. It then uses the proceeds of these sales to buy more of its buy-and-hold investments. The success of the strategy relies on the fund manager being able to stock pick successfully. OO Covered call funds. The aim of these funds is to provide a high level of income.

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

A sale made by someone who doesn't own the underlying asset — and this applies to bonds and stocks as well as wheat — is selling it "short," on the anticipation of buying it back at a lower price, or, in a pinch, buying it in the open WALL STREET market at whatever price prevails and delivering the goods.'"* Short-selling exposes the practitioner to enormous risks: w^hen you buy something — go long, in the jargon — your loss is limited to what you paid for it; when you go short, however, your losses are potentially without limit. In theory, brokers are supposed to be sure their clients have the credit rating to justify short-selling, though things don't always work out by the book. Options are similar. On April 18, 1995, the July wheat contract closed at $3.5175 per bushel for a contract covering 5,000 bushels, or $17,587.50 per contract.

…

But only in part, because the derivatives were a fancy-dress version of a classic strategy, borrowing lots of money to make bad investments. You don't need instruments WALL STREET jointly concocted by MBAs and theoretical physicists to lose at that game. 13. Anyone who thinks an option on a future is too abstract to exist is obviously not schooled in the higher financial consciousness. 14. An old Wall Street rhyme says of short-selling: "He who sells what isn't his'n/Buys it back or goes to prison." 15. What follows describes futures markets, but options markets are very similar. 16. Long before stock options were traded on exchanges, stock warrants were traded on the NYSE and other exchanges.Warrants are essentially long-term options to buy a stock, with maturities typically measured in years rather than months; they're frequently attached to new bond issues to make them more attractive. 17.

…

See debt deflation (Fisher) Delaney, Kevin, 265 Democratic Party, 87 deposit insurance, 88 Depository Intermediary Deregulation and Monetary Control Act of 1980, 87 depreciation, 140 Depression, 1930s financial mechanisms, 155-158 Friedman and Schwartz on, 200 derivatives, 28-41 custom, 34-37 defined, 28 early, 29 economic logic, 37-41 market-traded standardization and centralization, 32-33 technical details, 29 more complex strategies, 31 motives for, 31 and risk, individual and systemic, 40-41 short selling, 29-30 trading prowess, 32 winners, long-term, 32 development, 322 protectionism and, 300 Dickens, Edwin, 219 DiNapoli, Tom, 180 direct investment vs. portfolio investment, 109 Third World, 110-111 in U.S., dismal returns, 117 disclosure requirements, corporate, 91 discounting, interest rates and, 119-120 distribution Gini index, 115 income CEO vs. worker pay, 239 Manhattan's inequality, 79 polarization in 1920s, 200 wealth, 4, 64-68 dividends, 73, 135 changes in, and excess volatility, 175 payout ratios, and investment, 154 retention ratio, 75 unexpected changes in, 169 yields, 125 dollar, U.S.

Business Adventures: Twelve Classic Tales From the World of Wall Street
by John Brooks
Published 6 Jul 2014

or the identity of the owner of the stock he had borrowed (the same prospective cornerer, attacking from the rear?). Although it is sometimes condemned as being the tool of the speculator, short selling is still sanctioned, in a severely restricted form, on all of the nation’s exchanges. In its unfettered state, it was the standard gambit in the game of Corner. The situation would be set up when a group of bears would go on a well-organized spree of short selling, and would often help their cause along by spreading rumors that the company back of the stock in question was on its last legs. This operation was called a bear raid.

…

The Stock Exchange suspended Stutz dealings, lengthy litigation followed, and Ryan came out of the affair financially ruined. Then, as at other times, the game of Corner suffered from a difficulty that plagues other games—post-mortem disputes about the rules. The reform legislation of the nineteen-thirties, by outlawing any short selling that is specifically intended to demoralize a stock, as well as other manipulations leading toward corners, virtually ruled the game out of existence. Wall Streeters who speak of the Corner these days are referring to the intersection of Broad and Wall. In U.S. stock markets, only an accidental corner (or near-corner, like the Bruce one) is now possible; Clarence Saunders was the last intentional player of the game.

…

Only a need for sleep or a lack of money need halt the operations of a really hopelessly addicted plunger anywhere. “It was not the gnomes of Zurich who were beating down the pound,” a leading Zurich banker subsequently maintained—stopping short of claiming that there were no gnomes there. Nonetheless, organized short selling—what traders call a bear raid—was certainly in progress, and the defenders of the pound in London and their sympathizers in New York would have given plenty to catch a glimpse of the invisible enemy. IT was in this atmosphere, then, that on the weekend beginning November 7th the leading central bankers of the world held their regular monthly gathering in Basel, Switzerland.

The Forgotten Man
by Amity Shlaes
Published 25 Jun 2007

To have a Wiggin or a Whitney as their spokesman hurt defenders of the market at a time when their argument was crucial. For it was not wrong that a restriction on short selling would scare the market by depriving it of a vehicle for hedging its risks. That fear alone might even trigger big drops in stock prices. And there would no longer be the countervailing pressure of the short buyer. Mellon’s “liquidate” phrase sounded harsh but was far less constraining than the president’s restrictions on short selling. When a man marked your stocks to the market price and sold, everyone knew what everything was worth. The dread uncertainty of a further decline would diminish, and stocks might begin to move up again.

…

This was what everyone expected in any case, for at that time Washington did not regulate the stock market; the exchange was a New York corporation. Still, Hoover could scold, and he did. In his first annual message to Congress, delivered in December 1929, Hoover railed against the “wave of uncontrolled speculation” that he saw as a cause of the crash. Over the course of the winter and the next year he would speak out, too, against short selling. In a short sale, a trader borrows a stock and sells it at a certain price, in the hopes that by the time he must deliver the stock, he can buy it himself even more cheaply. Hoover believed that this was not logic but roulette at its worst. The game was dangerous because it moved away from the value of the underlying asset—shares in a company—and into the racy world of betting.

…

One was Richard Whitney, the new president of the New York Stock Exchange. Whitney, a patrician, could make the free-market argument as well as any. At a meeting in October 1930 at the Stevens Hotel in Chicago, Whitney criticized the idea of blanket legislation to restrict short sales and other forms of speculation: “The Exchange is convinced that normal short selling is an essential part of a free market in securities.” How could a market exist if it was not allowed to place such bearish contracts? “Such a contract to deliver something in the future which a person does not own is common to many types of business. When a builder contracts to build a skyscraper he is literally short of every bit of material.”

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

We can take one of the greatest winning stocks from 1960 and line it up with one of the best stocks in 1980 and they are going to have exactly the same characteristics. Do you have any thoughts on the subject of short selling? I need more time to study it and more experience. However, to pick a short, I think you need to flip all these characteristics we were talking about. Instead of a good growth record, you should look for a poor five-year growth record and quarterly earnings that are decelerating. The stock should be losing relative strength, breaking uptrends, and starting to hit new lows. Do you think that short selling may be a critical element for superior performance if we go into a long bear market? Yes, I think it would help.

…

I don’t normally advise people to sell short unless they are professional traders. Selling short is quite tricky. I myself have only made significant profits on the short side of two of the last nine bear markets. A stock should never be sold short because its price looks too high. The idea is not to sell short at the top, but at the right time. Short selling of individual stocks should only be considered after the general market shows signs of a top. The best chart pattern to short is one in which a stock breaks out on the upside of its third or fourth base and then fails. The stock should be breaking down toward the low end of its previous base pattern on increased volume.

…

The prior base will now provide an area of overhead supply, as all investors who bought in that zone will be losing money, and a number of them will be eager to get out near breakeven. Therefore, pullbacks to failed price bases also provide good timing for short sales. Does the element of unlimited risk present any special problem in short selling? No, because I never take unlimited risk. If a short position goes against me, I will be out after the first 6 or 7 percent loss. Before you sell any stock short, you should decide the price at which you will cover that short position if a loss occurs. Besides the CANSLIM formula, which is critical to your stock selection process, risk control obviously plays an important role in your overall strategy.

The Quants
by Scott Patterson
Published 2 Feb 2010

Over the next fifteen minutes before trading began on the NYSE, massive pressure built up on index futures, almost entirely from portfolio insurance firms. The big drop by index futures triggered a signal for another new breed of trader: index arbitrageurs, investors taking advantage of small discrepancies between indexes and underlying stocks. When trading opened in New York, a brick wall of short selling slammed the market. As stocks tumbled, pressure increased on portfolio insurers to sell futures, racing to keep up with the widely gapping market in a devastating feedback loop. The arbs scrambled to put on their trades but were overwhelmed: futures and stocks were falling in unison. Chaos ruled.

…

Meyer too was floored by Griffin’s broad understanding of technical aspects of investing, as well as his computer expertise, an important skill as trading became more mechanized and electronic. But it was his market savvy that impressed Meyer most. “If you’re a kid managing a few hundred thousand, it’s very hard to borrow stock for short selling,” Meyer recalled. “He went around to every major stock loan company and ingratiated himself, and because he was so unusual they gave him good rates.” Griffin set up shop in Chicago in late 1989 with his $1 million in play dough, and was quickly making money hand over fist trading convertibles with his handcrafted software program.

…

Like frightened children in a haunted house, investors had grown so skittish that they were running from their own shadows. The entire global credit market suffered a massive panic attack, threatening to bring down trading powerhouses such as Saba and Citadel in its wake. Another blow came from the federal government’s ban on short selling in the weeks following the Lehman-AIG debacle. Shares of financial firms across the board—even stalwarts such as Goldman Sachs and Morgan Stanley—were collapsing. To keep the situation from spiraling out of control, the Securities and Exchange Commission in September instituted a temporary ban on shorting about eight hundred financial stocks.

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

Short sellers legitimately bet against its stock, taking out a dirty operator to the betterment of the industry. Sometimes short sellers prey upon companies that are vulnerable due to poor management, risk intoxication, or plain bad luck. That described Bear Stearns to a tee. By mid-March, it was apparent that short-selling wolves were determined to cull Bear from the herd. Beginning on March 10, rumors and the memory of the previous year’s hedge funds debacle prompted skittish investors to pull $17 billion from Bear in two days. The price of its stock fell 60 percent as word got out. Early on March 12, the company issued a press release denying that Bear was in trouble.

…

Short sellers had turned their attention away from Lehman to the walking wounded like Morgan Stanley, even Goldman Sachs. They drove down stock prices and kept the fear alive. At the urging of the Fed and Treasury, the SEC board on September 19 voted unanimously to impose a temporary ban on the short selling of 799 stocks. Those who legitimately used short positions to hedge risk were outraged. This wasn’t China, after all. On September 21, Goldman Sachs and Morgan Stanley converted to bank holding companies to gain access to government rescue funds. In the meantime, the run on Washington Mutual continued.

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

Trading Risk: Enhanced Profitability Through Risk Control
by Kenneth L. Grant
Published 1 Sep 2004

For example, it was plainly easier to trade the long side of the stock market in the last half of the 1990s, first, because the market enjoyed a sustained rally for the entire period; second, because the equity markets are structurally organized under all market conditions to favor long bets through such mechanisms as the “uptick rule” for short sales, the rather complicated “borrowing-based” mechanics of short selling, the rules that compel large institutional portfolios to operate exclusively on the long side of the market, and other factors. We 136 TRADING RISK must bear in mind that short-selling in the equities markets represents, when results are characterized in terms of their extremes, an asymmetric bet under which gains are limited by the fact that a stock cannot price itself at a value less than zero, while potential losses are, at least in theory, unlimited in nature, as there is no upper bound to the value at which a security can trade.

…

From these perspectives, we can reasonably conclude that the calculation of a leverage factor for short options portfolios is a complex and ambiguous process that is probably viewed most rationally as a function of both the margin collateral required to fund them and the amount of risk capital rationally allocated to them. Absent the necessary precautions, the naked short sale of options is in most cases irresponsible and almost always a losing strategy over the long term. However, if incorporated into a sound risk-control program that features some of the components we’ve mentioned, short selling of options can have more attractive risk-control features than long options programs, which often generate large losses while providing false comfort as to their actual levels of exposure. To reiterate: Options are mathematically complex and extremely idiosyncratic. Options markets are notorious for packaging certain types of economic attributes on the surface while imposing subtle costs in hidden ways.

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See Exposure range determination Risk-free rate, exposure ranges, 112 Index Risk-free return, 65–66 Risk Management Investment, 1–5, 9–18 Risk mitigation, 136, 152 Risk models, 28–29 Risk of ruin, 245–246, 250–251 Risk profile, 12 Risk-taking capacity, 115–117, 233 Risk tolerance, 26–27, 63 Risk transference, 241 Scenario analysis, 84, 104–106 Scientific method, 5–6 Self-directed traders, 123 Self-funded traders, 110 Serial correlation, 76–78 Sharpe Ratio, 65–68 equation, 65 Inverted, 111–114, 248–250 limitations, 67–68 Sustainable, 112, 249 Short put options, 153 Short selling, 148–149, 152–154, 207 Short-side P/L, 166–168 /P/L, 62, 95, 116, 118 Size of position, significance of, 134–135, 159, 231 Skewness, 64–65, 70, 201 Slippage, 198 South Sea Bubble, 54–55 Spreadsheet programs, 61 Standard deviation, 57–65 confidence intervals and, 59–62 equation, 61 of returns, 66 sigma, 62 VaR parameters, 99–100 Static parameters, 87 Statistical significance, 40–42 Statistics: average P/L, 56–57, 69 confidence intervals, 59–62, 100 consolidated statistical profile, 79–80 correlations, 73–79 drawdown, 70–73 historical perspective, 53–56 257 median P/L, 68 percentage (%) of winning days, 68–69 performance ratio, 68–69 Sharpe Ratio, 64–68, 100 standard deviation, 57–66 winning days vs. losing days, 69–70 Stock index, benchmark, 73–74 Stock market crashes, impact of, 14–15, 43, 136, 173, 227 Stop-loss orders, 9, 207–208 Stop-out level, 20–21, 26–32, 118–119, 122–124, 190, 193, 227, 233–234 Strike price, 149–150 Support level, 107–108 Sustainable Sharpe Ratio, 112, 249–250 Target return(s): nominal, 20, 24–26 optimal, 20–24 Technical analysis, 77, 106–108 10% Rule, 116, 122–123, 249, 251 Time horizon, 53, 56, 142–144 Time series, generally: analysis/construction of, 6–7, 39 charts, 107 Time spans, 39–40, 43–48 Time units, 39–42, 46–48 Time unit/time span matrix, 39, 48 Timing, significance of, 220–221 Total long/short capital utilized, 161 Trade level P/L, 162 Trade selection, 187 Trading capital, risk exposure determination, 114–126 Trading Capital Equation, 122–123, 125 Trading efficiency, 223–224 Trading environment, assessment of, 22–23 Trading frequency, 203–204 Trading psychology, 208 Trading styles, 200 Trading with an edge, 219–225 Transaction, defined, 158–160 Transaction flow, 221–222 258 Transactions-level analysis: benefits of, 79 core statistics, 161–168 database, overview, 156–158 position snapshot statistics, 160–161 transaction defined, 158–160 Two-sided market, 135–137, 140 Underlying markets, 117 Underlying price, 149–150 Unit impact ratio, 187 Value at Risk (VaR) calculation: accuracy testing, 98–99, 103 and correlation analysis, 178–179 implications of, generally, 84, 91–92 justification of, 92–94 parameter setting, 99–100 in portfolio management, 102–104 purpose of, 178 types of, 94–98 Variance/covariance approach, VaR, 94–97, 99 Vince, Ralph, 246 Volatility: -adjusted exposure, 83–84 correlation analysis, 177–179 INDEX exposure range determination, 111–126 historical, 84–88, 96–97 impact of, generally, 40, 49–51, 65, 67, 74, 79 implied, 86–87, 89, 150 options implied, 86–89 position level, 141–142 risk management, as trading capital percentage, 114–126 size of position and, 134–135 skew/smile, 88 trading capital, impact on, 124 Volume-Weighted Average Price (VWAP), 159, 186 Wealth-management program, 30 Weekly P/L, 41, 43 Weighted average P/L, 164 Win/loss ratio, 184–186 Winning days, percentage (%) of, 68–70 Winning trades, 186–188, 191, 193 Working capital, 29, 122 Zero/low correlation, 172–173 

Transaction Man: The Rise of the Deal and the Decline of the American Dream
by Nicholas Lemann
Published 9 Sep 2019

Rita of Cascia Salomon Brothers; former staff of Samuelson, Paul Sanders, Bernie Sarnoff’s law savings and loans: in Chicago Lawn; deregulation of; failures of; federal insurance on; Whitewater and Schmidt, Eric Scholes, Myron School in the Home, The (Berle) Schumer, Chuck Schumpeter, Joseph Schwarzman, Stephen Scientology Sears seasteading Second Bank of the United States Securities and Exchange Commission; creation of; derivatives and; fixed commissions and; risk monitored by; Rule 415 of; short selling halted by Security Analysis (Graham and Dodd) September 11, 2001 Settlers of Catan shareholders: on boards; empowerment of; executives removed by; executives selected by; in hostile takeover; lack of accountability to; typical behavior of; war bonds as gateway to; see also principal-agent problem Sharpe, William Sherman Act Shockley, William short selling Silicon Valley (show) Silicon Valley; big corporations in; founding of; globalization of; Hollywood vs.; lobbying by; Morgan Stanley and; online networks and, see networks; political vision of; start-up culture of; Transaction Man in; venture capital in; workers’ rights in simulation hypothesis Sinai Health System singularity Sisters of St.

…

In those early years of the New Deal, Berle found himself in constant battle with other liberals who did not share his view. He had hoped, for example, that when the new agency regulating stocks, the Securities and Exchange Commission, was created, it would not only require public information but also regulate financial behavior—for example, banning margin trading, short selling, and the practice of banks trading stocks for their own accounts rather than those of their customers. Instead, his rivals holed up in a suite at the Mayflower Hotel to draft the SEC’s charter without informing Berle, and none of that happened. Berle enthusiastically supported the National Industrial Recovery Act, a law passed during the early days of Roosevelt’s presidency that gave the federal government the power to regulate specific companies’ prices, wages, and basic economic decisions, as another aspect of its new role as an economic power fully equal to the corporation.

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The government’s idea was that a larger and more stable bank should take over Morgan Stanley quickly, and through the week, officials lined up a succession of possible partners: J.P. Morgan Chase, Citicorp, Wachovia (which was itself failing), Goldman Sachs, a big Chinese investment fund. Mack, for his part, with the help of New York’s two senators, Schumer and Hillary Clinton, lobbied the government to call a temporary halt to short selling of financial company stocks; short sellers were swarming all over Morgan Stanley that week, trying to drive its stock ever lower so they could make more money. Despite the obvious irony in Mack’s request—most of the short sellers were Morgan Stanley clients, and the firm itself regularly shorted stocks for its own account—the Securities and Exchange Commission did impose a ban on Wednesday, September 17.

A Primer for the Mathematics of Financial Engineering
by Dan Stefanica
Published 4 Apr 2008

(B + dB) - (O(B) O(B + dB) - O(B) - ~ dB. ~. B) (3.98) We look for ~ such that the value of the portfolio is insensitive to small changes in the price of the underlying asset, i.e., such that II(B + dB) - II(B) ~ O. From (3.98) and (3.99), and solving for ~ ~ 0 (B ~, we find that + dB) dB (3.99) 0 (B) . 7To explain short selling, consider the case of equity options, i.e., options where the underlying asset is stock. Selling short one share of stock is done by borrowing the share (through a broker), and then selling the share on the market. Part of the cash is deposited with the broker in a margin account as collateral (usually, 50% of the sale price), while the rest is deposited in a brokerage account.

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The short is closed by buying the share (at a later time) on the market and returning it to the original owner (via the broker; the owner rarely knows that the asset was borrowed and sold short). We will not consider here these or other issues, such as margin calls, the liquidity of the market and the availability of shares for short selling, transaction costs, and the impossibility of taking the exact position required for the "correct" hedge. 106 CHAPTER 3. PROBABILITY. BLACK-SCHOLES FORMULA. By letting dS -+ 0, we find that the appropriate position .6. in the underlying asset in order to hedge a call option is ac .6. = as' which is the same as .6.

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i=l We assume it is possible to take arbitrarily large short positions in any of the assets. Therefore, the weights Wi are not required to be positive 7 . Let ~ be the rate of return (over a fixed period of time) of asset i, and let jLi = E[~] and eJ'f = var(Ri) be the expected value and variance of ~, 7If short selling is not allowed, then all assets must have positive weights, i.e., Wi ::::: 0, i = 1 : n. These inequality constraints make the portfolio optimization problem a quadratic programming problem which cannot be solved using Lagrange multipliers. For notation purposes, assume that asset 4 is the asset with uncorrelated return, i.e., Pi,4 = 0, for i = 1 : 3.

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

Although economic forces such as the growth of the world economy provided some fundamental reasons for the upward price pressure, it seems that speculative activity, especially by hedge funds, helped fuel the advance. And the few hedge funds that went short in the oil futures market experienced substantial losses. It is clear that arbitrage trades to correct a perceived price bubble are inherently risky. And there are also times when short selling is not possible or at least severely constrained. Typically in selling short, the security that is shorted is borrowed in order to deliver it to the buyer. If, for example, I sell short 100 shares of IBM, I must borrow the securities to be able to deliver them to the buyer. (I must also pay the buyer any dividends that are declared on the stock during the period I hold the short position.)

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(I must also pay the buyer any dividends that are declared on the stock during the period I hold the short position.) In some cases it may be impossible to find stock to borrow, and thus it is technically impossible even to execute a short sale. In some of the most glaring examples of inefficient pricing, technical constraints on short selling prevented arbitrageurs from correcting the mispricing. Arbitrages may also be hard to establish if a close substitute for the overpriced security is hard to find. For an arbitrage to be effective, there must be a similar fairly priced security that can be bought to offset the short position and that can be expected to rise if some favorable event occurs that influences the whole market or the sector to which the security belongs.

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The arbitrage is risky, however. An overpriced security can always become more overpriced, causing losses for the short seller. Bargains today can become better bargains tomorrow. It is clear that one cannot rely completely on arbitrage to smooth out any deviations of market prices from fundamental value. Constraints on short selling undoubtedly played a role in the propagation of the housing bubble during the end of the first decade of the 2000s. When it is virtually impossible to short housing in specific areas of the country, only the votes of the optimists get counted. When the optimists are able to leverage themselves easily with mortgage loans, it is easy to see why a housing bubble is unlikely to be constrained by arbitrage.

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

In currency markets, actual trade and investment flows make up a tiny portion of trading volume – around 3%. The rest is ‘capital flow’. This is just double-speak for speculative capital zooming around the globe at the speed of light along fibre-optic cables in search of profits. All this is aided and abetted by the turbo-charged power of cash settled derivatives. Derivatives also allow traders to short sell. You could sell something you don’t own. Confused? Well, if you don’t own something generally it is difficult to sell it. Even the most clueless buyer wouldn’t pay good boodle for something you can’t give him. Why can’t you deliver it to him? Well, you don’t own it – otherwise it would not be a short sale.

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One ‘hot’ hedge fund charges more – 5% and 35% of profits. Most hedge funds are small and fund managers are owner managers – Performance-related fees mean that they get paid more than they ever would on the sell side. Hedge funds are not actually hedged. They can do certain things that traditional investors can’t, short sell to take advantage of falling prices and leverage to increase profits. The benefits of derivatives – access, customized risk-reward profiles, ability to short and leverage – mean they are essential to hedge funds. Hedge funds also trade a lot; dealers love it. Special desks to sell exclusively to hedge funds are now common.

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You have to watch the risk of dilution (changes in the number of shares on issue) and you especially have to watch out for dividends (how much, when and how they are taxed). Then there are all the DAS_C04.QXP 8/7/06 242 4:51 PM Page 242 Tr a d e r s , G u n s & M o n e y quaint rules of stock exchanges that apply to trading shares (when you could short sell). This is a world of new unknowns but for those in the know, it presents endless opportunities. Many of these opportunities are presented by the uninitiated as they blunder around in equityland. Recently I saw an interesting trade between two reputable and highlyregarded banks on a five year option on a stock.

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

It was an out-of-control hit but because of the spare capital, we weren’t backed into a corner and were never forced sellers.They were able to be rational about it and actually bought more shares. It turned out to be a great buying opportunity. What was your next job? I went to work with Jim Chanos, who just did short selling. It was interesting going to work with him after the family, who were always optimistic and incredibly bullish. Jim was always trying to go against the crowd. He constantly picked things apart and looked for what “the market” had wrong. One thing Jim was never great at was figuring out why it would end.

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He was usually right, but what I’ve learned since is that it’s more important to be there when a mania ends, than spotting it early. What I came away with from my time with Chanos was that you don’t have to be skeptical about everything. Maybe the guys at Starbucks really are good managers and it really is one of the greatest concepts ever. Maybe eBay is the perfect business model. Short sellers can’t think that way. Short selling is a unique and specific mind-set. According to them, every Internet stock had to go bankrupt. Jim’s always betting against the house but, working with him, I learned that the house usually wins.That’s part of the short seller’s problem. Another problem is that it’s harder now because there are a lot more people doing it.

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Also, when a short goes against you, it becomes a bigger percentage of your portfolio, but when it’s working, it becomes a smaller percentage. So with a short, your risk increases as its goes against you. What distinguishes Jim Chanos as a short seller? Jim has been very successful and has caught some great shorts, like Enron recently. The great thing about Jim is that he is the presentable, educated face of short selling. He’d gone to Yale and is very articulate and thoughtful. He wasn’t one of these guys from a strange religion who crawled out from under a rock.We weren’t squeezing little trades and constantly fighting with the Vancouver Stock Exchange to borrow stocks. A lot of what he did was to catch the big shorts.

The Bank That Lived a Little: Barclays in the Age of the Very Free Market
by Philip Augar
Published 4 Jul 2018

Although Seegers was well in with Weill, he had a fearsome reputation inside Citigroup. TAKING IT TO THE NEXT LEVEL Beneath Varley’s bookish demeanour lay a committed capitalist. This punctilious lawyer had learned banking as a corporate financier, trading and risk management at BZW and modern financial techniques at Odey Asset Management. He knew all about shorting (selling shares you didn’t own in the hope that the price would fall and you could buy them back more cheaply before any money changed hands); leverage (borrowing money at low interest rates to invest in the markets); derivatives; and hedging risk. As Barclays’ finance director, his interactions with investors showed him that shareholders of all kinds were demanding in their expectations.

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The Bank of England was covertly providing it with funds but customers were withdrawing deposits at an alarming rate, and the British government had to facilitate its rescue by Lloyds on 17 September. There were similar bank runs and rescues across Europe: Glitnir bank in Iceland, Fortis Group in Belgium, Luxembourg and Holland, and Dexia in Belgium. In a futile attempt to stabilize markets, the British, American, Canadian and French authorities banned the short selling of bank shares. Brown led other world leaders in thinking through the crisis, and he was the first to see where it might lead. In the last week of September he used the annual meeting of the UN General Assembly in New York to sound out other government heads, senior figures on Wall Street and the Fed’s Geithner.

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Meanwhile, the fund’s derivatives specialists worked out how to hedge some of the risk involved. It had been a painstaking process but in the end the hedge fund had gone short in Barclays for a full year as the share price fell from 700 pence to 300 pence and had made record returns for its investors and partners. They closed out the position just before the FSA ban on short selling in September 2008 and banked all the profits. William was the originator of the idea, and although they didn’t do praise or formal year-end appraisals, he knew that he was now being listened to every time he spoke. William had learned a lot from watching the trade being put on and taken off. He had a restless mind and he was now thinking about Barclays again.

Python for Algorithmic Trading: From Idea to Cloud Deployment
by Yves Hilpisch
Published 8 Dec 2020

Standard functionality needed during the backtesting of different kinds of algorithmic trading strategies is made available by such a class in a non-redundant, easy-to-maintain fashion. It is also straightforward to enhance the base class to provide more features by default that might benefit a multitude of other classes built on top of it. Long-Only Backtesting Class Certain investor preferences or regulations might prohibit short selling as part of a trading strategy. As a consequence, a trader or portfolio manager is only allowed to enter long positions or to park capital in the form of cash or similar low risk assets, like money market accounts. “Long-Only Backtesting Class” shows the code of a backtesting class for long-only strategies called BacktestLongOnly.

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The choice of a platform might be influenced by multiple factors: Instruments The first criterion that comes to mind is the type of instrument one is interested in to trade. For example, one might be interested in trading stocks, exchange traded funds (ETFs), bonds, currencies, commodities, options, or futures. Strategies Some traders are interested in long-only strategies, while others require short selling as well. Some focus on single-instrument strategies, while others focus on those involving multiple instruments at the same time. Costs Fixed and variable transaction costs are an important factor for many traders. They might even decide whether a certain strategy is profitable or not (see, for instance, Chapters 4 and 6).

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The following is a brief description of Oanda along the criteria as outlined previously: Instruments Oanda offers a wide range of so-called contracts for difference (CFD) products (see also “Contracts for Difference (CFDs)” and “Disclaimer”). Main characteristics of CFDs are that they are leveraged (for example, 10:1 or 50:1) and traded on margin such that losses might exceed the initial capital. Strategies Oanda allows both to go long (buy) and to go short (sell) CFDs. Different order types are available, such as market or limit orders, with or without profit targets and/or (trailing) stop losses. Costs There are no fixed transaction costs associated with the trading of CFDs at Oanda. However, there is a bid-ask spread that leads to variable transaction costs when trading CFDs.

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

Event Driven strategies try to exploit price movements related to anticipating events affecting companies (for example, mergers, acquisitions, bankruptcies, and so on). Fixed-Income Arbitrage strategies try to exploit price anomalies related to interest rate instruments. Long-Short Equity strategies invest mainly in equities and derivative instruments. The manager uses short selling, but maintains a position in the neutral stock. Equity Market Neutral strategies attempt to exploit inefficiencies in the market through balanced overvalued securities buying and selling so that either a neutral-beta (that is, risk) or a neutral-dollar (that is, amounts invested) approach is obtained.

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Equity Market Neutral strategies attempt to exploit inefficiencies in the market through balanced overvalued securities buying and selling so that either a neutral-beta (that is, risk) or a neutral-dollar (that is, amounts invested) approach is obtained. Merger Arbitrage funds invest in companies involved in the mergersand-acquisitions process. Typically, they go long on targeted companies and sell short the acquiring companies. Relative Value strategies look to take advantage of the relative price differentials between related instruments. Short Selling strategies maintain a net or simple short exposure relative to the market. Chapter 12 Keeping the Wheels on the Hedge-Fund ATV 227 The potential downside of hedge-fund strategies is, if misapplied, they can bring disastrous results. The Long-Term Capital Management (LTCM) debacle is such an example.

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Alpha Strategies 1997 1998 1999 2000 2001 2002 Convertible Arbitrage 14.81% 3.11% CTA Global 12.27% 14.30% 1.82% Distressed Securities 16.70% –2.26% 19.75% 4.81% 14.65% 5.86% 27.34% Emerging Markets 22.57% –26.66% 44.62% –3.82% 12.52% 5.76% Equity Market Neutral 15.43% 10.58% 13.15% 15.35% 8.18% 4.71% Event Driven 20.98% 1.00% 22.72% 9.04% 9.32% –1.08% 20.48% Fixed-Income Arbitrage 12.43% –8.04% 12.63% 5.70% 7.81% 7.56% Long/Short Equity 21.35% 14.59% 31.40% 12.01% –1.20% –6.38% 19.31% 16.08% 17.77% 13.78% 8.60% 7.32% 3.52% 2003 2004 Average Return Standard Deviation Sharpe Ratio 10.61% 6.09% 1.08 8.73% 5.01% 0.94 17.89% 12.73% 9.58% 0.91 31.27% 14.30% 10.56% 21.82% 0.30 6.29% 4.71% 4.49% 1.27 12.43% 11.54% 9.07% 0.83 6.26% 6.41% 6.45% 0.37 8.62% 11.87% 12.22% 0.64 10.80% 1.10% 14.57% 11.64% 8.35% 5.17% 9.72% Alpha Strategies 1997 1998 1999 2000 2001 Merger Arbitrage 17.44% 7.77% 17.97% 18.10% 2.87% Relative Value 16.51% 5.27% 17.15% 13.35% 8.63% Short Selling 3.07% 2002 2003 2004 Average Return Standard Deviation Sharpe Ratio –0.90% 8.34% 4.83% 9.33% 7.44% 0.72 2.77% 5.71% 10.08% 5.40% 1.13 20.76% –0.05 12.15% 27.07% –22.55% 22.80% 10.20% 27.27% –23.87% –4.66% 3.01% Chapter 14 Every Strategy Has Its Day Average Return 15.78% 4.25% 15.88% 11.13% 8.21% 6.25% 12.01% 6.94% 9.98% 4.36% 1.37 Funds of Funds 17.39% 4.20% 28.50% 7.84% 3.52% 1.26% 11.45% 7.08% 9.85% 8.98% 0.65 Hurdle Rate* 9.30% 10.44% 7.72% 5.76% 5.20% 5.54% 7.88% 9.67% 9.55% * The hurdle rate is defined as the average of one month LIBOR plus 400 basis points.

Value Investing: From Graham to Buffett and Beyond
by Bruce C. N. Greenwald , Judd Kahn , Paul D. Sonkin and Michael van Biema
Published 26 Jan 2004

There are short sellers in the money management business, and there are more hedge fund managers who run portfolios composed of long and short positions. At the extreme is a strategy called market neutral, in which a balance between long and short is maintained to immunize the portfolio from whatever the market does. The assumption behind all short selling is that the current price of a security is not sustainable, and that as the price falls, the investors will buy back the shares they have sold and make a profit. Short sellers and hedgers use technical, fundamental, and event-oriented analyses to make their selections. One might think that orthodox value investors, armed with their valuation methods, would be well equipped to spot overpriced securities and benefit as reality sets in.

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Even the more contemporary and supposedly scientific version of hedging-the idea that certain positions can be counted upon to converge in price over time and that money can be made by pairing long and short positions as a bet on that convergence-has proved vulnerable to the point of a Federal Reserve intervention. Klarman, recognizing how much rides on those kinds of bets, especially when leverage is employed, steers clear of that kind of hedging. He does not employ naked short selling as a strategy, fearing the skewed risk of unlimited loss on a short position that moves higher. He will commit a portion of his funds to buying put options on a stock index, to hedge against a broad decline in the market. But that strategy is genuinely buying an insurance policy, a cost that will slightly reduce returns if everything works as intended but will offer some protection should the market drop.

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We thank ours: Diana Greenwald, Gabriel Kahn, Lavinia Lorch, Anne, Katie, Frank and Sally Rogin, Ava Seave, Stacy and Zev Sonkin, Fiamma and Tristan van Biema. 'We are going to confine our discussion throughout this book to the `long' position side of investing and ignore those investors who `short' (sell without owning) securities that they think are priced at more than their fundamental value. At certain points in his career, Graham used short sales to hedge other positions he had taken, and there may be bona fide value investors today who make active use of shorting securities. In the main, however, value investing is identified with uncovering fundamental value and buying it at bargain price.

Mathematical Finance: Core Theory, Problems and Statistical Algorithms
by Nikolai Dokuchaev
Published 24 Apr 2007

Definition 5.43 The fair price at time t=0 of the European option with payoff ψ is the minimal wealth X(0) such that there exists an admissible self-financing strategy (β(·), γ(·)) such that X(T)≥ψ a.s. for the corresponding wealth X(·). 5.9.2 The fair price is arbitrage-free Starting from now and up to the end of this section, we assume that a continuous time market is complete with constant r and σ. Let us extend the definition of the strategy by assuming that a strategy may include buying and selling bonds, stock and options. Short selling is allowed but all transactions must be self-financing; they represent redistribution of the wealth between different assets. There are no outputs or inputs of wealth. For instance, a trader may borrow an amount of money x to buy k options with payoff ψ at time t=0, then his/her total wealth at time T will be kψ−erTx.

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If the option holder has to fulfil the option obligations at time τ, we say that he or she exercises the option, and τ is called the exercise time. Sub (super) martingale properties for non-arbitrage prices Similarly to Section 5.9, we shall use the extended definition of the strategy assuming that a strategy may include buying and selling bonds, stock, and options. Short selling is allowed for stocks and bonds and not allowed for options. All transactions must be selffinancing; they represent redistribution of the wealth between different assets. For instance, a trader may borrow an amount of money x to buy k American options at time t with payoff then his/her total wealth at exercise time s is kF(S(s))−er(s−t) x.

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

On Bear Stearns Day, Lehman’s CEO Richard “Dick” Fuld knew that his company was in the crosshairs, and when the stock market opened on the next Monday, Lehman’s stock was, indeed, pummeled. As he later lamented to the FCIC, “Bear went down on rumors and a liquidity crisis of confidence. Immediately thereafter, the rumors and the naked short-selling came after us.” It certainly did. But Lehman managed to hold things together for another six months. Lehman’s primary regulator was the same as Bear’s: the somnolent SEC. After the Bear Stearns bailout, however, and especially after the Fed began lending to broker-dealers, the central bank started watching over Lehman Brothers and the other three Wall Street giants—with supervision, stress tests, requests for data, and the like.

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With OTC derivatives presenting a source of enormous profit to a handful of large broker-dealers, these financial behemoths had much to lose—and their army of lobbyists was girded for battle. SHOULD HEDGE FUNDS BE REGULATED? The financial crisis gave hedge funds a bad name, probably a worse name than they deserved. They were depicted as predators for their short selling; as excessively leveraged, and therefore a source of financial fragility; and as facilitating herding behavior, both in the bubble and in the panic after the music stopped. Maybe even as unsavory gambling dens. Nobody, it seemed, loved hedge funds—except, of course, the people who ran them, many of whom had amassed, in the apt words of a popular book on hedge funds, “more money than God.”

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Nobody, it seemed, loved hedge funds—except, of course, the people who ran them, many of whom had amassed, in the apt words of a popular book on hedge funds, “more money than God.” Surely anyone who had gained such an obscenely large fortune so fast must be guilty of something. But the facts did not support those harsh judgments, other than the charge of obscene rewards. First, short selling probably kept the housing and bond bubbles from blowing up even bigger than they did. Why? Not because “the shorts” were socially altruistic, but because they saw it as the path to riches. Shorting is a (leveraged) way to exert selling pressure on a security, which normally pushes its price down.

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

The stocks selected are likely to be among those which have been “behaving” better than the market average. A small number of professionals frequently engage in short selling. Here they will sell issues they do not own but borrow through the established mechanism of the stock exchanges. Their object is to benefit from a subsequent decline in the price of these issues, by buying them back at a price lower than they sold them for. (As our quotation from the Wall Street Journal on p. 19 indicates, even “small investors”—perish the term!—sometimes try their unskilled hand at short selling.) 2. SHORT-TERM SELECTIVITY. This means buying stocks of companies which are reporting or expected to report increased earnings, or for which some other favorable development is anticipated. 3.

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See also dividends; interest; performance; return on invested capital (ROIC); yield; specific company or type of security return on invested capital (ROIC) revenue bonds Riley, Pat risk: and advice; and aggressive investors; Buffett’s comments about; and defensive investors; and factors that characterize good decisions; foolish; and formula trading; and Graham’s business principles; and history and forecasting of stock market; and inflation; and investment vs. speculation; managing of; and margin of safety; and market fluctuations; and price; and return/reward; and security analysis; and short selling; and speculation; and value; what is; Zweig’s comments about. See also specific company or type of security Risk Management Association Ritter, Jay Roche Pharmaceutical Co. Rockefeller family Rodriguez, Robert Rogers, Will Rohm & Haas Rosen, Jan M. Ross, Robert M. DEL Roth, John Rothschild, Nathan Mayer Rothschild family roulette Rouse Corp.

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† Graham launched Graham-Newman Corp. in January 1936, and dissolved it when he retired from active money management in 1956; it was the successor to a partnership called the Benjamin Graham Joint Account, which he ran from January 1926, through December 1935. * An “unrelated” hedge involves buying a stock or bond issued by one company and short-selling (or betting on a decline in) a security issued by a different company. A “related” hedge involves buying and selling different stocks or bonds issued by the same company. The “new group” of hedge funds described by Graham were widely available around 1968, but later regulation by the U.S. Securities and Exchange Commission restricted access to hedge funds for the general public

The Concepts and Practice of Mathematical Finance
by Mark S. Joshi
Published 24 Dec 2003

Note that the speculators and traders in the banks are actually providing a public service - their frenetic buying and selling increases the liquidity of markets thus ensuring that the ordinary investor can buy or sell at anytime he wishes, rather than being forced to wait until a counteiparty can be found. 2.4.3 Shorting The third is the assumption that one can go `short' at will. That is, one can have negative amounts of an asset by selling assets one does not hold. Whilst there are some restrictions on short-selling assets in the market, it is allowed. The opposite of going `short,' holding an asset, is sometimes called being `long' in it. Similarly, buying an asset is called `going long.' 2.4.4 Fractional quantities The fourth assumption is the ability to purchase fractional quantities of assets. Whilst one can clearly not do this in the markets, when one is dealing in quantities of millions, which trading banks generally do, this is not so unreasonable the smallest unit one can hold is a millionth of the typical amount held, so any error is pretty small in comparison. 2.4.5 No transaction costs The fifth assumption is that there are no transaction costs.

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The share price for Legal and General reacted to this information by immediately jumping to about 200p. So there was an `arbitrage opportunity' to purchase Legal and General shares for 200p and sell them for 210p to NatWest. Many `arbitrage houses' therefore bought lots of Legal and General shares and financed the purchase by short-selling NatWest. However there was a good reason for the market's pricing the shares at 200p - there was a still a possibility that the deal would fall through. Indeed, Bank of Scotland launched a bid for NatWest and urged the shareholders to reject the Legal and General merger. The NatWest share price jumped up, the Legal and General one fell and the arbitrage houses had their fingers badly burnt.

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In general, 13.2 The simplest instruments 303 the best way to analyze an interest rate derivative is in terms of the cashflows involved, and we illustrate this here. All pricing of interest rate derivatives assumes the existence of a continuum of zero-coupon bonds which can be freely bought and sold, including short-selling as necessary. We will return to why it makes sense to make this assumption later but for now note that the bonds in question do not exist. The zero-coupon bonds will always have notional one. They will almost always be worth less than their face value as a bigger value is equivalent to negative interest rates, and so their values will be less than 1.

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

The cash managers of the firm try to keep all cash balances fully invested. Brokers usually house their cash management operations in the Cashier’s Department under the supervision of the firm’s cashier. The employees responsible for security lending operations are often those responsible for borrowing securities for short selling. They are often housed in the Margin Department or in the Stock Loan Department. 7.2.3.2 Risk Management The risk manager of the firm monitors all activities of the firm to ensure that the firm does not lose control over the risks it assumes. The risk manager must ensure that large losses never surprise the firm’s managers.

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If she does not plan her finances carefully, she will pay substantial taxes at the end of the year. Susan needs short-term capital losses to offset her capital gains. Unfortunately—actually fortunately—she does not have any positions with losses that she can sell. To solve her problem, Susan decides to buy the Mexico Fund (MXF) and short sell the Mexico Equity and Income Fund (MXE). These two funds are unrelated closed-end funds that own diversified portfolios of Mexican stocks. Although Mexican stocks are often quite volatile, the combined position is not very risky because the returns to these two funds are very closely correlated.

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Finally, value traders generally cannot sell securities that they cannot borrow. Bluffs therefore are more likely in securities that are hard to borrow. These securities are often small stocks for which the bluffer controls a substantial fraction of the shares outstanding. Because value traders generally can buy securities more easily than they can short sell them, long-side bluffs probably are more common than sell-side bluffs. 12.2.3 Prosecuting Market Manipulation Prosecuting market manipulators is very difficult because bluffers always claim to be well-informed speculators. The best bluffers probably are often well informed, though not necessarily about the objects of their bluffs.

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

Shannon wondered about the statistical structure of the market’s random walk and whether information theory could provide useful insights. He mentions such diverse names as Bachelier, (Benjamin) Graham and (David) Dodd, (John) Magee, A. W. Jones, (Oskar) Morgenstern, and (Benoit) Mandelbrot. He considered margin trading and short-selling; stop-loss orders and the effects of market panics; capital gains taxes and transaction costs. Shannon graphs short interest in Litton Industries (shorted shares vs. price: the values jump all over with no evident pattern). He notes such success stories as Bernard Baruch, the Lone Wolf, who ran about $10,000 into a million in about ten years, and Hetty Green, the Witch of Wall Street, who ran a million into a hundred million in thirty years.

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And if you know the “true” odds better than everyone else and use your beliefs to adjust your bets, you can expect a profit. It can be shown that these long-short trades are Kelly-optimal. They were in use in the stock market long before Kelly, though. Thorp’s innovation was to calculate exactly how much of the stock he had to buy to offset the risk of short-selling the warrant. This technique is now called “delta hedging,” after the Greek letter used to symbolize change in a quantity. In delta hedging, the paper profit (or loss) of any small change in the price of the stock is offset by the change in the price of the warrant. You make money when the “irrational” price of the warrant moves into line with the price of the stock.

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The final d in hedged was later dropped. When Jones liked a stock, he would borrow money to buy more of it. The leverage increased his profits and risk. To counter the risk, Jones sold short stocks that he felt were overpriced. This was “hedging” the fund’s bets. Jones called the leverage and short-selling “speculative tools used for conservative ends.” By 1968 there were about two hundred hedge funds competing for the finite pool of wealthy investors. Many who became well-known managers had started hedge funds, among them George Soros, Warren Buffett, and Michael Steinhardt. In the process, the term “hedge fund” drifted from its original meaning.

High-Frequency Trading: A Practical Guide to Algorithmic Strategies and Trading Systems
by Irene Aldridge
Published 1 Dec 2009

(9.3) Diamond and Verrecchia (1987) and Easley and O’Hara (1992) were the first to suggest that the duration between subsequent data arrivals carries information. The models posit that in the presence of short-sale constraints, inter-trade duration can indicate the presence of good news; in markets of securities where short selling is disallowed, the shorter the inter-trade duration, the higher is the likelihood of unobserved good news. 122 HIGH-FREQUENCY TRADING The reverse also holds: in markets with limited short selling and normal liquidity levels, the longer the duration between subsequent trade arrivals, the higher the probability of yet-unobserved bad news. A complete absence of trades, however, indicates a lack of news.

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References 309 Demsetz, Harold, 1968. “The Cost of Transacting,” Quarterly Journal of Economics, 33–53. Dennis, Patrick J. and James P. Weston, 2001. “Who’s Informed? An Analysis of Stock Ownership and Informed Trading.” Working paper. Diamond, D.W. and R.E. Verrecchia, 1987. “Constraints on Short-Selling and Asset Price Adjustment to Private Information.” Journal of Financial Economics 18, 277–311. Dickenson, J.P., 1979. “The Reliability of Estimation Procedures in Portfolio Analysis.” Journal of Financial and Quantitative Analysis 9, 447–462. Dickey, D.A. and W.A. Fuller, 1979. “Distribution of the Estimators for Autoregressive Time Series with a Unit Root.”

Sabotage: The Financial System's Nasty Business
by Anastasia Nesvetailova and Ronen Palan
Published 28 Jan 2020

I’m not going to use the word “conspiracy”, but it’s part of it,’ said Cayne in his testimony.38 Alan Schwartz, CEO in charge during the collapse, did not mince his words either, singling out Goldman Sachs for the concerted attack that led to Bear’s demise. Schwartz confronted Goldman’s CEO, Lloyd Blankfein, about it.39 Bear Stearns’s executives believed that Goldman collaborated with several hedge funds to short-sell Bear Stearns stocks, in order to subsequently make a huge profit from its collapse.40 They handed over documents to the Securities and Exchange Commission for an investigation into insider trading and market manipulation, but the investigation did not find anything substantial. The data speaks for itself.

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ABN accounted for 75–144 per cent (depending on different estimates) of the combined group’s operating losses in the same period.29 So did Barclays put RBS on the path to collapse? It may be that Barclays played a very clever game. Or perhaps it was sheer good luck. Barclays certainly appears to have tried to compete with RBS. Barclays Capital, for instance, sought to rally several hedge funds to weaken the consortium partner Fortis by short-selling its shares ‘and kill its planned €13.5bn rights issue’.30 This could have destroyed the position of the consortium, but the strategy failed because most hedge funds were betting in favour of ABN shares and preferred that the RBS consortium keep their price high. In any case, by August 2007 Barclays’ own share price fell, reducing the value of its share-based offer even more.

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

Although economic forces such as the growth of the world economy provided some fundamental reasons for the upward price pressure, it seems that speculative activity, especially by hedge funds, helped fuel the advance. And the few hedge funds that went short in the oil futures market experienced substantial losses. It is clear that arbitrage trades to correct a perceived price bubble are inherently risky. And there are also times when short selling is not possible or at least severely constrained. Typically in selling short, the security that is shorted is borrowed in order to deliver it to the buyer. If, for example, I sell short 100 shares of IBM, I must borrow the securities to be able to deliver them to the buyer. (I must also pay the buyer any dividends that are declared on the stock during the period I hold the short position.)

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(I must also pay the buyer any dividends that are declared on the stock during the period I hold the short position.) In some cases it may be impossible to find stock to borrow, and thus it is technically impossible even to execute a short sale. In some of the most glaring examples of inefficient pricing, technical constraints on short selling prevented arbitrageurs from correcting the mispricing. Arbitrages may also be hard to establish if a close substitute for the overpriced security is hard to fund. For an arbitrage to be effective, there must be a similar fairly priced security that can be bought to offset the short position and that can be expected to rise if some favorable event occurs that influences the whole market or the sector to which the security belongs.

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The arbitrage is risky, however. An overpriced security can always become more overpriced, causing losses for the short seller. Bargains today can become better bargains tomorrow. It is clear that one cannot rely completely on arbitrage to smooth out any deviations of market prices from fundamental value. Constraints on short selling undoubtedly played a role in the propagation of the housing bubble during the end of the first decade of the 2000s. When it is virtually impossible to short housing in specific areas of the country, only the votes of the optimists get counted. When the optimists are able to leverage themselves easily with mortgage loans, it is easy to see why a housing bubble is unlikely to be constrained by arbitrage.

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

For years Ackman had asked regulators, reporters, and just about everyone he spoke to about MBIA to see no contradiction in shorting a company and being a decent person. It is an idea that many people simply can’t accept. When Ackman had testified at the Securities and Exchange Commission in 2003, this issue of doing good by short selling had come up. Ackman had said it was one reason he decided to short Farmer Mac. “I prefer investments where I’m not fighting against the country. You know, where there’s public policy on my side instead of against me,” Ackman had told the investigators. But the SEC attorneys had been skeptical.

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Chapter Nineteen Ratings Revisited To keep the music playing required increasingly egregious excesses—ever greater quantities of increasingly risky loans, structures and leveraging —DOUG NOLAND, DAVID TICE & ASSOCIATES, DECEMBER 2007 IN DECEMBER 2007, Bill Ackman went door to door with his presentation on the bond insurers, launching perhaps the most aggressive “short” campaign in the history of Wall Street. Activist investors typically buy a stake in a company and then pressure management to make changes that will drive up the stock price. Short selling and activism are a much more complex pairing. An activist can’t exactly advocate for changes that will cause the company’s share price to collapse or cause it to file for bankruptcy. At least not very often. Ackman, however, saw his short position in MBIA as a cause. He believed his interests were aligned with those of MBIA’s policyholders because both would benefit if MBIA’s publicly traded holding company had less cash.

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ON JANUARY 30—the day Gasparino at CNBC broadcast Ackman’s loss estimates—the Federal Open Market Committee announced another rate cut, taking its benchmark rate to 3 percent from 3.5 percent. The magic worked but only briefly. Fears about bond insurance were weighing on stocks and on corporate bonds. Ackman’s startling high loss numbers were not helping matters. Some people thought Ackman had gone too far. Critics of short selling coined a phrase to describe the very public and unsettling analysis issued by some money managers during the credit crisis: “Short and distort.” The charge was leveled at Ackman and later at David Einhorn, who had begun to point to problems at Lehman Brothers. As Madame de Villefort, one of the nobles caught up in the Count of Monte Cristo’s acts of revenge, tells her friends, “It’s quite simple.

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

Besides isolating the most optimistic investors and setting a market price that reflects their views, the small float sets secondary forces in motion that accentuate the price appreciation. With a small float, investor demand for shares ends up being accommodated in a costly manner: through short selling and through high turnover. Short selling accommodates demand by creating virtual float. This requires a concession in price. Shorting a stock, especially a stock that has seen such price appreciation 172 ccc_demon_165-206_ch09.qxd 7/13/07 2:44 PM Page 173 T H E B R AV E N E W W O R L D OF HEDGE FUNDS and that is subject to widely differing views of valuation, requires sophistication, capital, and a risk appetite beyond that required from the buyers.

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That was a big bet and a far cry from the relatively low-risk enterprise of the usual cash-futures trade. And in this environment, it was even more risky because when the stock market did open, it was almost certain to open down. The execution of the program trade would then be complicated by the downtick rule, which proscribes short-selling a falling stock. The arbitrageurs wanted to buy the futures and sell the stocks short against them. If the market is in free fall, upticks are few and far between, and there are many short sellers trying to squeeze in their execution. It can take a long time to get a trade off. In the meantime, the long futures position is being held unhedged.

Faster, Higher, Farther: How One of the World's Largest Automakers Committed a Massive and Stunning Fraud
by Jack Ewing
Published 22 May 2017

Initially, Volkswagen shares rose in the weeks after Lehman filed for bankruptcy, nearly doubling, to more than four hundred euros, by October 16, 2008. But then they began to follow other German shares downward. Hedge funds swooped in and started to bet that VW’s price would fall further. The hedge funds, most based in the United States, used a risky short-selling strategy in which they sold borrowed shares in anticipation of buying them back later, at a lower price, and pocketing the difference. Compounding the risk, some sold shares that they hadn’t actually borrowed—a “naked” short that makes it even tougher to cover the bet later. As Volkswagen shares plummeted, Porsche’s obligations to Maple Bank began piling up on an almost hourly basis.

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(Some funds also sued in Germany. The cases were still pending as of late 2016.) To be sure, it was hard to shed many tears for the hedge funds. They were operating in a rough neighborhood. As Richard W. Painter, a professor at the University of Minnesota Law School who studied the case, has pointed out, short selling is an inherently risky strategy frowned on, if not banned, in many jurisdictions. It was cheeky of hedge funds to summon protection from U.S. securities laws on shares traded in Germany. That was the equivalent of sitting in New York and betting on a horse race in Stuttgart, then complaining to the New York Gaming Commission that the jockey was corrupt.

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District Court, San Francisco Schmidt, Oliver admissions about defeat device, 199 arrest of, 268 conference call with CARB, 182 indictment of, 269 obfuscations about defeat device, 196–97 on regulators’ queries, 179 testimony before European regulators, 231–32 Schneiderman, Eric T., 229 Schröder, Gerhard, 95, 101, 163 Schuster, Helmuth, 102–4, 106 SCR (selective catalytic reduction) systems; See also BlueMotion emissions technology; BlueTec emissions technology Audi’s undermining of, 127 and CARB tests, 173, 176, 177 and defeat device, 227, 246 and EA 288 engine, 180 falling price of, 209 ICCT test, 167 and urea tank, 167 SEAT, 97, 158 self-driving cars, 204, 222 self-expression, cars as form of, 146 sex scandal, 102–7 shared platform, See platform strategy shareholders, VW, 26, 58–59, 244 share prices declines (2015), 189 declines (early 2000s), 130–31 following EPA charges against VW, 212 under Pischetsrieder, 110 Porsche, 96 Porsche-VW takeover battle, 138–40 short-selling, 138–41 short squeeze, 139–40, 142 Siemens bribery scandal, 257–58 Silicon Valley, 222 Skoda, 6, 48, 102–4, 158 Skoda Octavia, 53 slave labor, 12–14 smog, NOx and, 2, 160, 168–69 Snap-On, 70 Social Democratic Party, 26, 49, 164 software, 120, 226–28; See also defeat device software updates, 182–84, 224, 244 soot particles, 43–44, 115, 159 Sorrell, William, 248 South Korea, 245 sovereign wealth funds, 143 Soviet Union, 17 special settlement master, 233 Speer, Albert, 17 sport utility vehicles (SUVs), 94–96 Stadler, Rupert, 257, 272, 273 Stalin, Joseph, 6 Standard & Poor’s, 219 “Statement of Facts,” 269 Steiner, Rudolf, 129 Steinkühler, Franz, 49 stock market, 96 stock options, 133, 136, 137 Strategy 2018, 150–51, 188 stretch goals, 151 Stumpf, John, 262 subprime mortgage crisis, 136 Sudetenland, 6 Sullivan & Cromwell, 229–30, 235 Super Bowl, 145 supervisory board (Audi), 45–46 supervisory board (VW) executive committee awareness of emissions problem, 271 failure to sanction managers for emissions cheating, 256–57 and internal investigation, 216 Piëch as member after retirement, 97, 157 Piëch’s attempt to oust Winterkorn, 187 Piëch’s elevation to VW CEO, 49 Porsche-Piëch family’s influence on, 264 Porsche’s attempted VW acquisition, 135–36 Porsche’s position on VW board, 133 VW’s acquisition of Porsche, 143–44 worker participation in, 57 supply chain, as VW weakness, 50–51 synthetic shares, 137 Tatra, 9 tax credits, 147 TDI (turbocharged direct injection), 44–45, 55, 116, 128, 146, 181 “Think Small” ad campaign, 34–35 Thiruvengadam, Arvind, 1, 167, 169, 171, 172 Thomas, Sven, 239 Thompson, Greg, 79–80, 166, 167, 172, 174 three-liter diesel engine and “acoustic function,” 123, 128, 246 defeat device in, 152, 158 EPA/CARB questions about, 183–84 EPA’s second notice of violation, 217 exclusion from first US settlement, 238 notice of violation for cars with, 217 SCR technology, 180 settlement for US and Canada, 266 US charges against designer of, 246–47 Tiercelet, France, iron mine, 15 Tiger Tank, 10–11 Time magazine, 265 Tolischus, Otto D., 9 Toyota as competitor in early 1990s, 50–51 EA 189 engine as part of VW’s strategy against, 107 European market share, 161 former employees at Porsche, 52 hybrid technology, 2–3, 116, 146; See also Toyota Prius surpassed by VW as world’s largest carmaker, 187–88, 206 VW’s efficiency gap with, 50–51, 58, 94, 110, 188, 219 VW’s sales competition with, 156 Toyota Prius, 107, 116, 146, 207, 208 Transport Select Committee, House of Commons, 231 truck engine emissions cheating scandal, 72–74, 76, 78, 125, 163 trust fund, 236 Tuch, Frank, 223 turbochargers, 44 Type 166 Schwimmwagen, 10 Umweltbundesamt, 162–64 unemployment benefits, 101 unemployment rate, German, 101, 102 United States Audi defeat device revelations, 267–68 Clean Air Act Amendments (1990), 67 EA 189 as key to VW market in, 116–17, 119 EA 189 development, 107–8, 119–20 environmental rule enforcement, 165 fleet average fuel economy milestones, 131 legal ramifications of emissions violations, 225–31 NOx regulations, 165 penalties for emissions violations, 122, 155, 156, 163 state lawsuits, 245–47 TDI Club, 45 truck engine defeat device scandal, 163 VW plant in, 148–49 VW sales (early 1970s), 36 VW sales (early 1990s), 47 VW sales (late 1990s), 55 VW sales (2014), 206 VW sales after cheating revelations, 217–18 VW’s “clean diesel” campaign, 145–58 VW’s declining fortunes in early 1990s, 47, 48, 50 VW’s early success in, 34–35 VW’s missteps in, 115–16 VW’s responsibility for diesel pollution, 253 and Winterkorn’s sales ambitions for VW, 112–13 unit injector (Pumpe Düse), 116–17 University of Virginia Center for Alternative Fuels, Engines, and Emissions, See Center for Alternative Fuels, Engines, and Emissions (CAFEE) urea solution, 177, 180–81, 192; See also BlueTec emissions technology urea tank, 113, 127–28, 152–53, 183 U.S.

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

The evidence of support in the railroad list and the ability of the average to hold only slightly under the resistance point are significant to the student of the averages. 8 July: [DJIA bottoms] 11 July: While Wall Street generally continues to pay more attention to fears of possible adverse news than to concrete actions which have tremendous potentialities for long-term improvement, there has been investment buying, both here and abroad. 11 July: Several leading stocks broke through their previous low levels late in the week, including American Telephone, Coca Cola, Eastman Kodak, Union Pacific, Public Service of N.J., International Shoe and International Business Machine. 11 July: Common stock of Coca Cola has been subject to considerable short selling… this selling, which has been by traders who believe that the return of beer of a higher alcoholic content than ½ of 1% is rapidly becoming a probability. Robert W. Woodruff, President of Coca Cola pointed out that in Montreal, where the sale of alcoholic beverages has been permitted for some time, sales of Coca Cola are more then double the per capita sales of the United States. 12 July: Shareholders of RCA numbered 103,851 on December 31, 1931.

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[List shows 67 stocks 50% or more above their 1932 lows the day the market bottomed on 8 July.] 14 July: The Anglo-French accord agreeing to a united front on political and financial matters affecting the welfare of Europe, was the chief matter of interest. Foreign buying of American stocks has been in somewhat larger volume in the past few days according to some sources…For a period of months, from early March until late June, foreign trading in the market, except for occasional short selling, was relatively negligible. 15 July: The action of stocks in the face of quite a number of unfavourable developments, was particularly encouraging. Unquestionably, the hope of nearby adjournment of Congress, which might provide a stimulus for a rally, remained the prime factor in the upswing.

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These positions for the most part were never closed in expectations of further unfavourable developments in this country…Previously convinced that the United States was headed for economic chaos, the sight of rising security prices brought conviction that the United States after all furnished the best opportunity for capital investment and appreciation. 5 August: In spite of evidence that many in the Street continued to fight the advance and that both short selling and profit-taking were in the market throughout the session, prices in most instances attained new highs in the most active market since October, 1931. 6 August: While prices eased during the afternoon, it was apparent that substantial resistance was being encountered on the decline, and there was no evidence of any major extension of the reaction. 8 August: The Street believes the short position in many stocks is still as large as it was a month ago a belief which the Exchange’s figures on the short interest as of August tends to bear out. 9 August: All capitals of Europe have probably done more trading in our securities in the past week than in over a year and certainly more buying that at any time since the 1929 crash. 12 August: In the face of the largest month’s percentage advance in the aggregate security values since the depression started, total known security loans declined $112,000,000 in July to the lowest level on record.

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

Company, bourse and bank provided the triangular foundation for a new kind of economy. For a time it seemed as if the VOC’s critics, led by the disgruntled ex-director le Maire, might exploit this new market to put pressure on the Company’s directors. A concerted effort to drive down the price of VOC shares by short selling on the nascent futures market was checked by the 1611 dividend payment, ruining le Maire and his associates.22 Further cash dividends were paid in 1612, 1613 and 1618.23 The Company’s critics (the ‘dissenting investors’ or Doleanten) remained dissatisfied, however. In a tract entitled The Necessary Discourse (Nootwendich Discours), published in 1622, an anonymous author lamented the lack of transparency which characterized the ‘self-serving governance of certain of the directors’, who were ensuring that ‘all remained darkness’: ‘The account book, we can only surmise, must have been rubbed with bacon and fed to the dogs.’24 Directorships should be for fixed terms, the dissenters argued, and all major shareholders should have the right to appoint a director.

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securitization 4 of debt 10 federal government and 260 perils of 261 private bond insurers and 260 segregation 250-51 Self, Beanie 268 Senegal Company 141 Serbia 2 sexual language 351 shadow banking see banks Shakespeare, William, The Merchant of Venice 33-4 Shanghai 303 shanty towns 274 shares (or stocks or equities): as collateral 132 displacement 143-4 features of 120-26 Law’s System and 143 shareholders’ meetings 120 and First World War 302 see also options; stock markets Sharpe, William 323 Shaw-Stewart, Patrick 302 shells 30 Shettleston 38-40 Shiller, Robert 281 Shining Path 276 ships/shipping 127-8. see also marine insurance short positions 316 short selling 137 Shylock 33-5 sidecars 227 Siena 69 Silicon Valley see dot.com silver 19-26 and Mississippi Bubble 149-50 Spanish and 1 Simons, James 330 Singapore 337n. SIVs see structured investment vehicles Skilling, Jeffrey K. 169 slavery: and home ownership 267 Rothschilds and 93 slave trading 25 Sloan, Alfred 160 Slovenia 2 Smith, Adam 53 socialists: and bond markets 89-90 and liberalization 312 and welfare state 200-202 Socialist Standard 17-18 Song Hongbing 86 Soros, George 314-19 income 2 on ‘market fundamentalism’ 337 Sourrouille, Juan 112 South America 18-26 gas pipelines 119 property law 274-6 see also Latin America Southern Rhodesia 295 South Korea 233 South Sea Bubble see bubbles sovereign wealth funds 9 Soviet-style economics 213 Soviet Union see Russia/USSR Spain 36 declining empire 26 and gold and silver 1 property price boom 10 royal funding 52 Spanish Succession, War of the 156 special-purpose entitities (SPEs) 172-3 speciation 53 speculators 122. see also futures contracts Spencer, Herbert 351 spices 127 spreads 241 squatters 276-7 squirrel skins 25 Sri Lanka 134 stagflation 211 Standard and Poor’s (S&P) 268 Standard and Poor’s 500: 124n.

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bd Since the term was first used, in 1966, to describe the long-short fund set up by Alfred Winslow Jones in 1949 (which took both long and short positions on the US stock market), most hedge funds have been limited liability partnerships. As such they have been exempted from the provisions of the 1933 Securities Act and the 1940 Investment Company Act, which restrict the operations of mutual funds and investment banks with respect to leverage and short selling. be Technically, according to the US Securities and Exchange Commission, a short sale is ‘any sale of a security which the seller does not own or any sale which is consummated by the delivery of a security borrowed by, or for the account of, the seller’. bf A swap is a kind of derivative: a contractual arrangement in which one party agrees to pay another a fixed interest rate, in exchange for a floating rate (usually the London interbank offered rate, or Libor), applied to a notional amount.

The Powerful and the Damned: Private Diaries in Turbulent Times
by Lionel Barber
Published 5 Nov 2020

Where I can exert direct influence is the mid-morning meeting of commentators and ‘leader writers’, where we agree on the FT’s editorial line on the big issues of the day. Normally, I’m light touch. But these are not normal times. Today, the question is whether regulators should impose a temporary ban on short selling. Should we back intervention, knowing that short sellers help to establish market value; or should we back a ban on the grounds that the survival of the financial system is at stake? In the end we backed a temporary ban. The authorities simply had to intervene, a point later reinforced by Steve Schwarzman, head of Blackstone.

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This has been a Herculean effort, with heavy legal risk, conducted by Dan and Paul Murphy in the investigations team and Nigel Hanson, in-house lawyer. The FT story triggered a collapse in Wirecard’s share price. German investors were outraged. Wirecard accused our reporters of colluding with short sellers and successfully lobbied BaFin, the German financial regulator, to impose an unprecedented ban on short selling. Wirecard also engaged Herbert Smith Freehills, the blue-chip London law firm. As a publicly traded company in the prestigious Dax index, they had no problem spending several million pounds trying to stifle a negative story. The FT did not have that kind of money. And so began a stand-off which would consume more of my time than any single story in 2019.

…

Lee) 182, 182n Lehman Brothers x, xiv, xv, 5n, 37, 46, 81, 85, 86, 87, 101–2, 104, 105, 107, 121, 160, 199, 432 Le Pen, Marine 349, 353, 380 Leveson Inquiry xv, 177–8, 191–2, 194–5, 197, 200–202, 220, 221, 222–3, 227, 236, 237, 239, 257n Leveson, Lord Justice 177, 194, 195, 201–2 Lewis, Leo 181 Lewis, Simon 143 Lewis, Will 135, 135n Liberal Democrats xv, 135, 135n, 151, 158, 158n, 159, 195–6, 274, 275, 275n, 284, 288, 290, 354 Libor rate 168, 212 Libya 142, 177, 180, 259, 330, 355, 387 Li, Frank 207–8 liquidity, financial 69, 70, 86, 94, 103, 117, 323 Lisbon treaty, EU 64, 64n, 67, 381 Liu Xiaoming x, 206–7, 374–5 Llewellyn, Ed 308–9 Lloyds Bank 19 Long-Term Capital Management (LTCM) 86, 86n Luce, Ed 130, 190 Maastricht treaty (1992) 64n, 342, 389, 426, 433 Mackay, Angela 284 Mack, John 85, 86 MacLeod, Lisa 147, 203 Macron, Emmanuel 353, 412–13 MacShane, Denis 41 Mail on Sunday 58, 197, 220–21, 227, 265 MailOnline 357 Ma, Jack 233 Major, John 139, 157, 217n, 290, 320, 342n, 414 Major, Tony 240–41, 254–5, 272 Ma Kai 271 Makinson, John 189, 282 Malema, Julius 260–61 Mallet, Victor 245, 392–3 Malmström, Cecilia 328 Mandela, Nelson 51, 52, 53 Mandelson, Peter 65, 190, 244 Manningham-Buller, Eliza 20–22 Marchionne, Sergio 375–6 Markle, Meghan 422 Marks and Spencer 235–6, 244 Marriage, Madison 368–9, 370, 371, 372, 373–4, 382, 384 Massoudi, Arash 295, 296 Mayer, Marissa 73–4 May, Theresa ix, xvi, 274, 310, 323, 324, 326, 327, 328, 333–4, 339, 342–3, 345–6, 349–50, 353–4, 358, 359–60, 365, 373, 375, 381, 388, 399–400, 402, 406, 410, 411, 413, 414, 420, 425 Mbeki, Thabo 51–3 McCain, John 96, 99 McChrystal, Stan 148–9, 148n, 150 McClean, Paul 356–7, 395 McCoy, Danny 188 McCrum, Dan 404, 405, 407, 421 McDonnell, Finola 406–7 McGregor, Heather 14 McKinsey 122, 197, 243, 245, 306 McLaren, Malcolm 155–6 McMaster, Lieutenant General H.R. 366, 366n McNulty, Sheila 35 Media Standards Trust 220–21 Medvedev, Dmitry xiv, 89, 90–91, 329, 417 Melbourne Mining Conference 386–7 Meng Wanzhou 399 Merkel, Angela ix, xiv, xvi, 95–7, 153, 199, 211, 253, 274, 309, 323, 326, 358–9, 367, 368, 420, 426, 433–5, 437 Merrill Lynch 16, 86, 102 #MeToo 357, 369, 370 Metropolitan Police 165 Meyer, Christopher 139 Micklethwait, John 238, 258 Middleweek, James 20 MI5 20–22 Miliband, David 162, 163–4, 193 Miliband, Ed 162, 164, 193, 273, 286, 290 Miller, Maria 220, 223 Mill, John Stuart 423, 423n Mirror Group 197, 227 MI6 21, 180 Misra, Rajeev 383 Mitchell, Tom 390 Modi, Narendra ix, 244–6, 309, 348, 407–9 Molotov, Vyacheslav 90, 90n Monti, Mario 196, 203–4, 367–8 Moreno, Glen 114–15, 294 Morgan Stanley 85, 86, 102, 113 Morgan, John Pierpont 93 Morgan, Piers: The Insider 11 mortgage-backed securities 62, 84, 85, 114 Mosbacher, Georgette 242, 333, 358, 366 MPs expenses scandal 135–6 Mubarak, Hosni 54 Mudie, George 127 Mueller investigation, US 374, 374n Mugabe, Robert 52, 53, 261 Mulcaire, Glenn 190 Mulvaney, Mick 366, 366n Münchau, Wolfgang 172, 180 Murdoch, James 63 Murdoch, Rupert xv, 5, 5n, 28, 59–61, 65, 67, 161–2, 177, 191, 222, 267–8, 282, 289, 291, 317, 318 Murphy, Paul 27, 291, 368, 369, 382, 384, 405, 421 Murray, John 386 Musk, Elon 221–2 Myanmar 229–31, 233 Narayanan, M.K. 169 National Security Agency (NSA) 236–7 National Union of Journalists (NUJ) xiv, 202, 203, 240, 311 NatWest Bank 22, 22n Navalny, Alexei 328–9, 329n Nayef, Mohammed bin 308 Nazarbayev, Nursultan 142, 176, 176n Netanyahu, Benjamin ix, xiv, 102, 108, 109, 109n Netflix 398–9, 439 Neville-Rolfe, Lucy 23 Newman, Cathy 15, 15n News Corporation 5n, 268 News International 161–2, 165, 191 News of the World xv, 11, 139, 165, 177, 190, 191, 223, 223n, 237, 324n Newton, Gordon 9, 391 New Yorker 381 New York Post 119 New York Stock Exchange 86, 234 New York Times 35, 59, 61, 161, 165, 189, 216n, 224, 225, 258, 298, 332 NHS (National Health Service) 180, 180n, 232, 289, 313, 422 Nikkei xv, xvi, 281, 283, 284–5, 295–300, 295n, 301–3, 304, 305–6, 310–11, 312, 321, 339, 371, 373, 374, 390, 391, 394, 403, 407, 428, 431 Nikkei Asian Review 403 9/11 terrorist attacks (2001) 76, 236 Nixon, Richard 10, 45, 241, 267 non-doms 82–3, 83n, 319 Noonan, Peggy 317 North Korea 54, 182, 253–4, 348, 349, 366, 374, 376, 397 Northern Rock 45, 70, 77, 88, 127 Oakeshott, Isabel 316 Obama, Barack xii, 55, 68, 82, 96, 96n, 97, 98, 99, 113–14, 117, 130–31, 132, 148n, 162, 163, 187, 188, 189, 204, 219, 222, 233, 236, 307, 320, 331, 333, 342, 348, 378, 396, 413, 435 Obamacare 342, 348 Obama, Michelle 204 Office of Budget Responsibility (OBR) 106 Okada, Naotoshi 284, 298, 299, 404 Oliver, Craig 180 Olympics: (2008) 98–9; (2012) 98–9, 243 Olympus Corporation 298 1MDB (Malaysian state investment fund) 167 O’Neal, Stan 16, 148 Osborne, George xv, 81, 82, 97, 106, 156–7, 159, 174, 193, 209, 255, 259, 273–4, 289, 308, 318–19, 324, 345, 377, 378, 413 Owen, Geoffrey 252, 411 Owen, Jane 174–5, 264, 270 Oxford Union 41, 41n, 340 Page, Bruce 62 Page, Larry 326 Pakistan 41n, 132, 161, 168, 169, 170, 171–2, 203, 309, 363 Palestinians xv, 54–5, 107, 108, 109, 208, 378 Palin, Sarah 99 Pandit, Vikram 85, 113 Parker, Alan 153, 153n Parker, George 152, 153, 157, 320, 322–3, 359 Parker, Lieutenant General Nick 150 Patten, Chris 217, 217n Paulson, Hank 31, 31n, 55–6, 57, 87, 104 Payne, Sebastian 313, 410 Pearson x, 3, 3n, 5, 8, 15, 18, 19, 29, 43, 66, 73, 114, 115, 128, 189, 213, 218, 251, 253, 257, 282, 288–9, 292, 293, 294–7, 302–3, 311 Pence, Mike 333 Penguin Books 189, 282 Perkins, Zelda 357 Peston, Robert 70, 127 Pfizer 263 phone-hacking xv, 41, 76, 139, 162, 165, 166, 177, 190–91, 195, 223, 223n, 236, 268, 291 PIGS (acronym for southern European nations) 100–101 Pilling, David 165, 355, 356 Piris, Jean-Claude 341, 426 Polman, Paul 352, 353 Portugal 99–100, 148, 212, 238 Powell, Colin 54, 330 Powell, Jonathan 68, 68n Prabodhan 244–5 Presidents Club 368–9, 370–72, 373 Press Complaints Commission (PCC) 139, 165–6, 165n, 178, 192, 197, 201, 202, 221 Press Standards Board of Finance (Pressbof) 197 Prince, Chuck 69 private equity xiv, 46, 68, 69, 113, 114, 233, 243, 352 Purdy, Matt 332 Putin, Vladimir ix, xii, xvi, 89, 89n, 91, 120–21, 137, 205, 237–9, 238n, 256, 275, 277, 307, 328, 329, 330, 335, 348, 380, 401, 405, 406, 416–20, 432, 434 Qatar 74, 122, 212, 377 quantitative easing (QE) 199, 241 quants 187 Quinn, Sally 276 Raab, Dominic 410, 410n Rachman, Gideon 26, 26n, 43, 359 Rafsanjani, Akbar Hashemi 249–50, 249n Rajan, Raghuram 246–7, 246n Rajoy, Mariano 155, 219, 225–6 Rake, Michael 122, 212 Ramaphosa, Cyril 51, 262 Rathbone, John Paul 100, 140, 141, 428 Read, Ian 263 Reagan, Ronald 117, 129, 186, 188, 232, 249, 315, 317, 366, 397 Rees-Mogg, Jacob 327, 340, 341, 373, 388, 424 Rees-Mogg, William 340 Reliance Communications 247 Reliance Group 40 Remnick, David 381 Ren Zhengfei 183–4, 399 Renzi, Matteo 239–40 Republican Party, US 96, 130, 187–8, 242, 314, 315, 316, 331, 333, 363, 366n, 374 Reuters 147n, 258, 295–6, 298, 403, 417 Rice, Condoleezza 53–5, 108, 330 Richard III (Shakespeare) 192–3 Ridding, John 29, 135, 147–8, 215, 234, 257, 258n, 282, 288, 292, 293, 295, 296, 297, 299, 301, 312, 406–7, 430 Rio Tinto 286, 386 Robbins, Ollie 414–15 Robinson, Gwen 185, 230–31 Robinson, Nick 318 Rogers, Ivan 326 rogue traders 193 Rollins, Ed 366–7 Romney, Mitt 219 Roosevelt, Teddy 130, 140, 348 Rothermere, Jonathan 377 Rothschild 296, 353 Rothschild, Lynn Forester de 265, 265n Rouhani, Hassan ix, 249, 250–51, 267 Rousseff, Dilma 140, 142 Royal Bank of Scotland (RBS) xiv, 22–3, 22n, 75, 122 RPC (law firm) 421 Rubin, Robert 84, 172, 228 Rudd, Kevin 144, 144n Rudd, Roland 322 Rumsfeld, Donald 54, 330 Rupert, Johann 428, 428n Rusbridger, Alan x, 76, 139, 191–2, 197, 290–91, 395 Russell, Alec 51, 53, 189, 302, 321–2, 381, 429, 430 Russia ix, 56, 70, 81, 88–91, 91n, 120–21, 138–9, 161, 163, 228, 229, 237–9, 237n, 238n, 239, 256–7, 259, 275, 276–7, 307, 328–31, 335, 348, 349n, 374n, 376–7, 376n, 377n, 391, 405, 408, 416–20, 434 Rwanda ix, 142, 340, 354–6 Saatchi, Charles 243, 243n Salman, Mohammed bin x, xii, xvi, 306–8, 326, 361, 362, 376–9, 383, 392 Salmond, Alex 272, 273, 361–2 Salvini, Matteo 380 Samsung 182, 182n Sandberg, Sheryl 394 Sandbu, Martin 172 Sands, Peter 244–5, 245n Santander UK 210, 210n Santos, Juan Manuel 141 Sarkozy, Nicolas 62, 91–2, 185, 259, 412, 413, 435 Saudi Arabia xii, xvi, 107, 306–8, 360–61, 362, 376–9, 383, 392 Saudi Aramco 307, 308 Scardino, Marjorie x, 5–6, 8, 9, 14, 18, 26, 29, 32, 43, 66, 73, 83, 85, 93, 115, 147, 213, 218, 251, 282, 294, 411 Scavino, Dan 347 Schama, Simon 266–7 Schmidt, Eric 74, 160–61 Schroders 235, 235n Schwab, Klaus 120 Schwarzman, Christine 104 Schwarzman Scholars programme, Tsinghua university, Beijing 120 Schwarzman, Steve x, xiv, 46–7, 103–4, 118–20, 333, 377 Scotland 22, 22n, 250, 290, 344, 350, 361–2, 438; independence/independence referendums 253, 258–9, 266–7, 269, 271, 272, 273, 319, 320, 413, 438 Scotsman 13, 22, 361 Scott, C.P. 440 Scottish National Party (SNP) 272, 273, 290, 350, 361 Scowcroft, Brent 55 Second World War (1939–45) 128–9, 400 Seibert, Steffen 433 Sein, Thein 230 self-driving cars 215 Selmayr, Martin 406 Sevastopulo, Demetri 181, 346, 396 7/7 suicide bombings, London 21, 21n S4Capital 386 ‘shadow banking system’ 134 Shakespeare, William 192–3, 270, 323 shale gas 238 Shariatmadari, Hossein 249 short selling 103, 405, 407, 421 Shrimsley, Robert 13, 28, 102, 107, 117–18, 333, 371, 372, 430, 431 Shwe, General Than 230 Silicon Valley xv, 73, 74, 183, 184, 200, 213, 214–16, 236, 291, 348, 358, 394 Silva, Lula da 140, 142–3 Silverman, Gary 102 Simpson, Wallis 201 Singhal, Amit 214–15 Singh, Manmohan 38–9 Skapinker, Mike 298 Skripal, Sergei 376–7, 417, 419 Sky Television 41, 63, 127, 267–8, 316–17 Smith, Adam 124, 266, 297 Smith, Terry 14–15, 17–18, 19–20, 20n, 32, 139, 201–2, 218, 243, 372 Smollett, Tobias 297, 297n Snowden, Edward xv, 202, 236–7, 270–71, 291, 395 Snowdon, Lord 75, 76 SoftBank 325, 325n; Vision Fund 308, 326, 378, 383 Solana, Javier 219 Son, Masayoshi 325–6, 325n Soros, George 190, 231 Sorrell, Martin 32–3, 46, 60–61, 191, 293, 370, 371, 374, 381–2, 383–6, 385n South Africa 51–3, 109, 147, 229–30, 260, 402, 424, 428, 428n, 429 South Korea 23, 181, 182, 182n, 242, 342, 366, 366–7n, 435, 438 Spacey, Kevin 192–3 Spain 84, 100–101, 148, 153–5, 212, 219, 225–6, 238, 363, 388 Spiegel, Peter 15, 200, 211, 302, 357, 389 Squire, Sarah 264 Sri Lanka 169, 356 Stalin, Joseph 48, 50, 64, 95, 207, 331 Standard Chartered Bank 244–5, 245n Stephens, Mark 174–5 Stephens, Philip 190, 209–10, 228, 354 Stevenson, Dennis 19, 128 Stoppard, Tom 300–301 Stott, Michael 403 Stringer, Sir Howard 17, 17n, 298, 299, 301 Studzinski, John 317 Sturgeon, Nicola 272 ‘sub-prime’ mortgages 62n, 69, 114 Sullivan, Martin 36, 37, 37n Sulzberger, Arthur 225 Summers, Larry 189–90 Sun 41, 100, 162, 165n, 223 Sunday Mirror 75–6 Sunday Times 7, 62, 68, 135n, 192, 317 Susman, Louis B. x, 68, 204, 222 Svanberg, Carl-Henric 409–10 Svenska Dagbladet 240–41 Swannell, Robert 235–6 Swift, Jonathan 297, 297n Syria xiv, 55, 102, 110–11, 177, 259, 355 Taliban 133, 149, 150, 170 Taseer, Salman 169–70 Tate Modern 319 taxation 83n, 106, 125, 131, 143, 143n, 160, 187, 189, 193, 263, 287, 318, 333, 342, 343, 363n, 368, 410, 439 Taylor, Ian 287, 387–8 Team Sky 216, 219 Tencent xii, 440 Tendulkar, Sachin 247 Tesco 23–4 Tesla 221–2, 221n Tett, Gillian xiv, 44–5, 74–5, 102, 147, 190, 346, 347, 389 Thain, John 86–7 Thatcher, Margaret 117, 128, 129, 186, 217n, 229, 231–3, 244, 316, 317, 320, 426, 429, 438 Thompson, Mark 162, 216–17, 216n, 332 Thomson, Robert 5, 5n, 60 Thornhill, John 302 3G 352, 353 Times, The 5, 5n, 28, 35, 60, 151, 165, 165n, 192, 255, 264, 340 Timmins, Nick 47–8 Timothy, Nick 342, 349, 350 Today programme 318 Tortoise 28, 389 Toynbee, Polly 82–3 Trans-Pacific Partnership (TPP) 391, 392 Trichet, Jean-Claude 61–2, 188, 416 Trump, Donald ix, xii, xv, xvi, 58, 97, 131, 133, 184, 211, 251, 312, 314, 315, 316, 317, 331, 332–3, 334–5, 339, 340, 341–2, 345, 346–9, 350, 353, 359, 364, 366–7, 366n, 367n, 374, 376, 378, 380, 381, 390, 391, 394n, 396, 397–8, 399, 406, 409, 412, 419, 420, 432, 434, 435, 437 Turnbull, Andrew 47–51 Tutwiler, Margaret 86 Twitter 210–11, 224, 225, 320, 326–7, 347 Uber 357–8 UBS 179n, 193 UKFast 401 UKIP 253, 259, 262, 274, 284, 412 Ukraine 12n, 27n, 91, 253, 256–7, 259, 275, 330; Orange Revolution 253, 256 Unilever 263, 352, 353 United Arab Emirates xiv, 102 United States: FT move into 3–4; Presidential Election (2008) 68, 82, 96–7, 96n, 98, 99, 113–14, 220; Presidential Election (2012) 220; Presidential Election (2016) 312, 314, 330, 331, 332, 346, 374n; trade war with China xvi, 390, 397 see also individual president name Uribe, lvaro 140, 141–2, 380 Vadera, Shriti 244, 301 Vanity Fair 7, 75, 206 Venezuela 141, 261, 418–19 Verizon 236 Vickers, Paul 197, 227 Vietnam War 132–3, 233, 284 Viner, Kath 291 Virgin Islands 178 Vitol 286, 287, 387 Volkswagen 292 Wall Street Journal 5n, 35, 59–61, 65, 66, 92–3, 135n, 258, 282, 289, 298, 305, 381, 382 Wang Jianlin 213, 233 Wang Qishan 390 Warner, Mark 187 Washington Post 10, 15, 35–6, 51, 57, 59, 60n, 258, 276, 282, 332, 392 Watergate scandal 10, 222n Waters, Richard 215, 270–71 Weber, Axel 178–9, 179n Weibo 234 Weidmann, Jens 368, 415 Weinstein, Harvey 204, 357, 358, 370 Wen Jiabao xiv, 117, 123–6 West Bank 108 Weston, Galen 198, 198n WhatsApp 210, 395 Wheatley, Jonathan 143 White House correspondents’ dinner (2007) 55 WikiLeaks xv, 161, 174–5, 291 Wilkes, John 194, 194n, 195 Williams, Jon 149 Williams, Archbishop of Canterbury, Rowan 168, 169 Williams, Ted 402–3, 404, 432 Williamson, Hugh 96 Wilson, Harold 227, 388 Wilson, Kevin 255, 272, 321 Wimbledon Championships 33–4, 118, 211–12, 242n Wirecard xiii, 401, 404–5, 407, 421 Wolf, Martin x, 38–9, 43, 66, 102, 109, 129–30, 136, 172, 190, 209–10, 232, 256, 271, 436 Wolfowitz, Paul 55–6, 56n, 57, 63 Wong, Joshua 351 Woodford, Michael 298–9, 300–301 Woodford, Stephen 34 Woodward, Bob 276, 342 World Bank x, 56, 56n, 57, 63, 118 World Economic Forum, Davos 46–7, 85–6, 118–23, 225, 360–61, 371, 380, 385, 398 WPP 33, 370, 381, 382, 384–6 Wright, Peter 197, 220, 227 Xi Jinping 99, 241, 242, 303, 304, 305, 335, 347–8, 374–5, 390, 397, 409, 439 Yakovenko, Alexander 237–8, 376–7, 405 Yakunin, Vladimir 276–7 Yale University, Poynter fellowship lecture 134–5 Yanukovich, Viktor 27n, 256, 330 Yemen 307, 377 Zapatero, José Luis Rodríguez 153–5, 225 Zardari, Asif Ali 170, 171–2 Zimbabwe 52, 53, 261 Zoellick, Bob x, 63, 417, 437, 437n Zuckerburg, Mark 394 Zuma, Jacob 52, 53, 261–2 THIS IS JUST THE BEGINNING Find us online and join the conversation Follow us on Twitter twitter.com/penguinukbooks Like us on Facebook facebook.com/penguinbooks Share the love on Instagram instagram.com/penguinukbooks Watch our authors on YouTube youtube.com/penguinbooks Pin Penguin books to your Pinterest pinterest.com/penguinukbooks Listen to audiobook clips at soundcloud.com/penguin-books Find out more about the author and discover your next read at penguin.co.uk EBURY UK | USA | Canada | Ireland | Australia New Zealand | India | South Africa Ebury is part of the Penguin Random House group of companies whose addresses can be found at global.penguinrandomhouse.com.

Madoff: The Final Word
by Richard Behar
Published 9 Jul 2024

Sometimes the newspapers were spread out on the floor, with David Kugel, a senior trader in the company’s legit side of the business (he would eventually plead guilty to securities and bank fraud), poring over the stock pages. Kugel was the firm’s expert in convertible arbitrage, an investment strategy that entails simultaneously purchasing convertible securities and short selling the same issue’s common stock. (In short selling, the trader sells the shares first and hopes to buy them back at a later time at a lower price than originally sold.) Frank saw Kugel, who started at BLMIS in 1970, take the old Journals home in a briefcase, returning the next day with formulas for Bongiorno based on the previous day’s stock prices.

…

He also credits Madoff with once buying a great deal of stock in Forest Laboratories circa 1967 and making a huge profit from it—a fact Bernie confirmed to me after I asked him vaguely if he ever scored big in the early days with a pharmaceutical stock. He named Forest instantly. “He lived and breathed that company and was the number one market maker in it,” recalls Rind. “But when he was wrong on a stock, he committed fraud.” One of Madoff’s strategies at the time was short selling, in which, as stated earlier, a position in a public company is taken by borrowing shares that the investor believes will fall in value. Only in Madoff’s case, “If he sold short, and the stock price went up, then he would pull the shares from his clients,” recalls Rind. Put another way, he’d use customer money to leverage himself when he was wrong regarding the market.

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

Its liquidity pool had shrunk from $130 billion to $55 billion in a week; it was borrowing nearly $70 billion from the Fed to make up the difference. Its stock price fell 60 percent before word of the short-selling ban leaked. One New York Fed bank examiner reported in an email that a Citi executive had told her: “Morgan is the deer in the headlights.… It’s looking like Lehman did a few weeks ago.” And everyone on Wall Street knew that if Morgan went the way of Lehman, Goldman would be next. That would be more stress than the system could handle. WE WERE under no illusions that the short-selling ban or even the prospect of broad congressional relief would magically stop the run on the investment banks.

…

In May, the hedge fund manager David Einhorn, who had bet heavily against Lehman, publicly accused the firm of overly optimistic accounting, and in June, Lehman announced a $2.8 billion second-quarter loss, prompting Dick Fuld to oust his longtime deputy and demote his chief financial officer. Lehman’s stock price dropped nearly 75 percent below its peak. Fuld urged Hank and me to push the SEC to ban short selling, but that seemed like a shoot-the-messenger solution. The markets could see that Lehman was carrying assets at 80 or 90 cents on the dollar that other firms had written way down. And they were justifiably worried about what they couldn’t see. One thing we saw when our monitors dug into Lehman and the other investment banks was that their internal stress tests had not been very stressful.

…

She was right—and to her credit, she had an alternative plan. She suggested Treasury should guarantee only investments that were in money funds before September 19, removing the incentive to shift cash out of FDIC-insured banks. Hank agreed. In yet another announcement that busy Friday, the SEC temporarily banned the short selling of 799 financial stocks, a heavy-handed effort to stop the stampede of speculation and rumor mongering. We all had reservations about this. It seemed to signal a debilitating lack of confidence in those 799 firms. I thought there was some risk that preventing investors from hedging their exposures would actually accelerate the flight to safety through other mechanisms.

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

There is initially a financial liberalization of some sort and this leads to a significant expansion in credit. Bank lending increases by a significant amount. Some of this lending finances new investment but much of it is used to buy assets in fixed supply such as real estate and stocks. Since the supply of these assets is fixed the prices rise above their “fundamentals.” Practical problems in short selling such assets prevent the prices from being bid down as standard theory suggests. The process continues until there is some real event that means returns on the assets will be low in the future. Another possibility is that the central bank is forced to restrict credit because of fears of “overheating” and inflation.

…

The speculators hold some cash (the safe asset) in order to purchase the risky asset when its price at date 1 is sufficiently low. The return on the cash is low, but it is offset by the prospect of speculative profits when the price of the risky asset falls below its fundamental value. Suppose the risk neutral speculators hold some portfolio (Ls, Xs). They cannot short sell or borrow. In equilibrium they will be indifferent between the portfolio (Ls, Xs) and putting all their money in the risky asset. The impact of introducing the asset market can be illustrated using Figure 3.3. The graphs in this figure represent the equilibrium consumption levels of early and late consumers, respectively, as a function of the risky asset return R.

A First-Class Catastrophe: The Road to Black Monday, the Worst Day in Wall Street History
by Diana B. Henriques
Published 18 Sep 2017

Portfolio insurance trades had been sparse on Tuesday, but with the market’s recent declines, those hedges would likely need to be adjusted soon. That would mean heavy selling in Chicago. Moreover, some aggressive speculators on Wall Street had started to trade ahead of the portfolio insurers, to profit from their anticipated sales. That copycat short selling could add extra weight to whatever the portfolio insurers did. For most investors, the rest of the week was truly awful. By Friday, October 9, the Dow had fallen to 2,482 points, which was almost 159 points and 6 percent below its level the previous Friday. Measured in points, it was the worst one-week decline in Wall Street history.

…

The securities were tied up for months in the bankruptcy process, and investors fled the repo market in droves. At the industry’s urgent request, Congress adopted amendments to the federal bankruptcy code to clarify that a repurchase agreement should be treated by the court as collateral if a trading firm collapsed. to build up a risky trading position: This is the Treasury market’s version of short-selling in the stock market, in which a speculator pays a fee to borrow shares of a supposedly overvalued stock and then sells them, betting that the stock price will fall and he will be able to buy it back, return the borrowed shares, and pocket a profit. Here, the bond trader was betting that rising interest rates would push down the price of the bonds he had borrowed and sold, and he would therefore be able to buy them back at a lower price and profit from the difference.

…

CFTC mutual funds and national market system rule and New York office options and President’s Working Group and program trading and reform proposals and regulatory structure and Ruder heads settlements and Shad heads Shad-Johnson Accord and Shad resigns Silver Thursday and single-industry index futures and stock index futures and takeovers and Treasury market and witching hours and Securities Industry Association Securities Law Institute Seevers, Gary L. settlements Seventh Circuit Court of Appeals Shad, John S. R. Shad, Pat Shad-Johnson Accord shadow banking system shareholder democracy Shearson Lehman Brothers Shopkorn, Stanley short selling Silicon Valley silver futures Silver Thursday (1980) Singapore market single-industry (narrow) index futures Skadden, Arps, Slate, Meagher and Flom Smelcer, Wilma Smith, Roger B. snowball effect Social Security commission Solomon, Anthony Sommer, A. A., Jr. “Al” South Africa South Sea Company Soviet Union Spear, Leeds and Kellogg specialists speculators Sprague, Irvine H.

Investing Amid Low Expected Returns: Making the Most When Markets Offer the Least
by Antti Ilmanen
Published 24 Feb 2022

The counterargument is that limits of arbitrage and slow learning can sustain behavioral anomalies for long periods after the opportunity has been identified. Limits of arbitrage are explanations that help especially behavioral anomalies stick. The classic case is noise trader risk for contrarian strategies: Rich things can get richer.2 Other limits include trading costs, short-selling constraints, and leverage constraints. The last one is a crucial force limiting arbitrage. Even the “unconstrained” arbitrageur is limited from fully exploiting the available opportunities, especially assets/strategies with low natural volatility or highly diversified composites. Sometimes, these limits are even viewed as the original reason for certain regularities.

…

Internal success is most plausible for some large Canadian pension funds willing to pay people compensation somewhat competitively with PE managers, unlike most US or European institutions. 12 Sosner-Liberman-Liu (2021) estimates the magnitude of this effect, including income and estate taxes. 13 My colleagues have written extensively about tax-aware investing in the US which recognizes the return impact of realizing gains as tax costs and realizing losses as tax gains. For example: Sialm-Sosner (2018) highlights the benefits of short-selling in realizing well-timed capital losses (especially important for managing the higher short-term capital gains); Liberman et al. (2020) shows that separating the alpha of long/short strategies from the beta of passive indices offers tax advantages over a traditional active long-only approach; and Sosner-Gromis-Krasner (2021) studies the tax benefits of direct indexing.

…

See also Naive Trading costs; Trading costs average market impact cost estimates, 229f minimization, 228f Covid-19 crisis, impact, 22, 73 Cowles data value, usage, 111 Credit carry strategy, 130 Credit excess return, 76f Credit market size, 75 Credit performance statistics, 78t Credit premium (premia), 74–81 Credit strategies, 125 Cross-country returns, 245 Cross-sectional approaches, time-series approaches (contrast), 182 Cross-sectional momentum, 117, 118, 182 Cross-sectional stock selection strategies, application, 121 Crowding concerns, 158–160 Cube, The, 197f Cumulative excess returns, 71f, 82f Cumulative return, 129f Currency carry, 125–126 Currency-hedged investor, function, 55 Cyclically-adjusted earnings yield (CAEY), 18, 59–60 aggregate measure, 113 averages, comparison, 65 judgement, in-sample signals (usage), 236 level, reduction, 68 quintile buckets, 238f scatter plot/time series, 237f usage, 174, 236 D Data mining, usage, 170–171 Defensive factor, 153 Defensive stock selection, low beta/quality basis, 132–133 Defensive strategies, 131–137 Defensive US equity strategies, performance, 135f Defined-benefit (DB) pension plan (D-B plans), 28–30 glide paths, adoption/changes, 32, 32f low expected return challenge, impact, 42–43 US public/corporate DB pensions, A-B evolving asset allocation, 38f Defined contribution (DC) pension, 16, 28 Defined contribution (DC) savers, low expected return challenge (impact), 44–45 di Bartolomeo, Dan, 160 Dilution effects, variation, 64 Dimson, Elroy, 36 Directional commodity index trading, 83 Direct real estate, listed real estate (comparison), 95 Discounting, 164, 170 Discount rate effect, 17–21, 17f Discretionary investing, systematic investing (contrast), 142b Disinflation, secular developments, 71 Disposition effect, 167 Diversification, 187–189, 191–194 A-B value, 190f usage, 191f Dividend discount model (DDM), 59, 174 Dividends-base Gordon model, 174 Dividends per share (DPS), 59, 60, 64–65 Dividend yield-based stock selection strategy, 130 Dividend yield differential, 127–128 Downward-sloping glide path, justification, 30–31 Dragon risk, 196 Drawdown control rules, 209–210 Dry powder, absorption challenge symptom, 100 Dynamic risk control strategies, 209–210 E Earnings per share (EPS), 59–62 Economic rationale, global change (impact), 169 Economic recessions (bad times measure), 154 Ellis, Charley, 36 Emerging market bonds, growth, 75 Empirical evidence, usage, 170–171 Employee satisfaction, evidence, 223 Endowment Model (Yale Model), 13, 37, 41 Endowments, 29, 45 Environmental, Social, and Governance (ESG) investing, 11, 26, 42, 205, 219–223 considerations, 6 ESG-Sharpe ratio frontier, stylized example, 222f framework, 220f preferences, 196 strategies, 168 themes, examples, 223t Equations, usage, 173–180 Equilibrium real yields/growth, comparison, 21 Equities beta, 101 bonds, shift, 35–36 contrarian timing, 240–242 equity-bond allocation, optimization, 201f equity-like risk-taking, 47 housing, performance comparison, 90–93 market beta, A-B scatterplot multi-asset average return, 154f money management process, 40 returns, GDP growth (weak empirical relationship), 67b valuation, level, 68 Equity allocation (stylized glide path), 30f, 32f Equity market, 168 correlations, evolution, 130f decline (bad times measure), 154 empirically decomposed equity market return, 66t ownership shares, evolution, 35f strategy Sharpe Ratios, predictor basis, 241f tail performance, 123f Equity premia, 55–69, 58f Estimation errors (MVO), 204–206 Excess returns, 9f, 70–71, 71f, 81, 82f Exchange-traded funds (ETFs), 34, 40, 83, 141 Exotic beta, 106 Expected real return (60/40 stock/bond portfolio), 19f Expected real return/expected inflation, US cash rate split, 54f Expected return, 62–64, 176, 197, 235 Expected Returns (Ilmanen), 10, 12, 75 Extrapolative strategies, 117–124 Ezra, Don, 36 F Factor, 8, 107 coefficients, 182 diversification/timing, usage, 242f factor-based investing, 47 momentum, 122 Fallen angels, 79–80, 102 Falling next-decade expectations, 20f Fama, Eugene, 107, 109, 111, 140, 152, 176, 178 Fama-French factor models, 140 Fama-MacBeth factor-mimicking portfolios, 183 Fear of missing out (FOMO), 246 Fees, 96, 225, 230–232 Five-factor model (Fama/French), 107 Fixed income (FI), 201 funds, positive credit beta tilt, 80 Flow data, understanding, 161b Forward-looking analysis, 65 Forward-looking equity premia (real yields), 59–62 Forward-looking indicators, 96 Forward-looking real equity return, 68f Forward-looking returns, 59 Forward-looking Treasury yields, decomposition, 71–72 French, Kenneth, 99, 107, 109, 111, 114, 140, 176, 230 Front-end opportunities, 80 Fundamental law of active management (FLAM), 178–180, 188, 193 Funding ratio (FR), 28, 31–32, 42 evolution, 43f Future excess returns, 238f G GAAP earnings (replacement), operating earnings (usage), 62 GARCH models, 215 Generic risk premium (1/price effect), 126 Geometric mean (GM), 81–82 Glide paths, adoption/changes, 32, 32f Global asset allocation, contrarian strategies (usage), 114 Global bond yield decline, convergence (relationship), 23f Global equities average compound/premia, 57f cumulative excess returns, comparison, 71f diversification, home bias (contrast), 188 drawdowns, 155 Global Financial Crisis (GFC), 4, 21, 38, 208 buyout index, drawdown, 99 volatility, 124 Global government bonds/global equities, cumulative excess returns (comparison), 71f Globalization, disinflationary impact, 53 Global Japanification, 21 Global market portfolio, 39b–40b Goetzmann, Will, 111 Gold, examination/history, 83, 85f Goobey, Ross, 36 Gordon growth model, 59, 62 Governance, problems, 248 Government bond index returns, 75 Gradualism, usage, 169 Great Depression, 36, 58, 208 Great Inflation, 53 Grinold, Richard, 178 Gross domestic product (GDP), 67b, 154 GSCI index, 83 H Hedge fund index cumulative excess return over cash, 144f Hedge funds, 144, 144f, 146f, 147, 149 industry excess-of-cash return, decomposition, 148t High yield (HY) bonds, 74, 76 High yield (HY) corporate bonds, characteristics, 76–77 High-yield default rates, 79f High yield (HY) market, OAS, 77 Historical average, 56 excess returns, 75–77, 81–83 return, 180 Historical bond yields, excess returns (relationship), 70–71 Historical equity premium, 56–59 Historical realized premium, 56 Historical returns, sources (understanding), 65 Home bias global equity diversification, contrast, 188 reduction, 37 Horizon, 165f, 181–182 Housel, Morgan, 248 Housing, 90–93 NCREIF commercial real estate index, real return (decomposition), 100f US housing, arithmetic mean returns (decomposition), 92f I Idiosyncratic momentum, 121 Idiosyncratic security risk, diversification, 109 Idiosyncratic volatility factor (IVOL), 134, 136 Illiquid alternatives, 36–37, 88–101, 203 Illiquid assets, 24 class, performance/risk statistics, 91t global wealth share, 89b–90b premia, 156 Illiquidity premia, 87, 95, 101, 146–147 correlations, 108t smoothing service, impact, 98–99, 99f Illiquidity proxy, A-D scatterplot multi-asset Sharpe ratio, 156f Impatience, 164–167 Incomes, equations, 174–175 Income strategies, 124–131 Index funds, market share loss, 40 Individual pension saver, 28 Inflation, 54 average inflation, real cash return (relationship), 53f GFC, impact, 21 hedging premium, 83, 85–86 increase, 215, 250 inflation-indexed government bonds, liquidity, 101–102 sensitivities, 85f Information ratio (IR), 80 Informed traders, 102 In-sample signals, usage, 236 Institutional investors asset management fees, estimates, 231f procyclicality, 246 Intangibles, B/P ratio, 112–113 Interest rate risk, 101 Internal rates of return, basis, 89, 99 Intertemporal CAPM, 176 Inverted Shiller CAPE, 174 Investable global market, history, 38 Investable indices, absence, 9 Investable, limit (broadening), 38 Investing, 34, 42, 47, 168, 243 active investing, passive investing (contrast), 140–142 principles, 250–251 superstars, examination, 147, 149, 149f systematic investing, discretionary investing (contrast), 142b Investment, 6–8, 11–15 models, taxonomy, 41f opportunities, 83, 247t problem/solution, identification, 30–31 returns, decadal perspective, 24–26 risk, management techniques, 209–210 success, forecasting skills (impact), 206 Investment-grade (IG) bonds, 74, 79 Investors, 27–33, 42–45 institutional investors, asset management fees (estimates), 231f low expected returns, impact, 249–250 patience, enhancement process, 167–169 portfolio construction process, 177–178 returns demand, 175–177 risk level, determination, 249–250 trading costs, differences, 226 value, addition process, 178–180 Irrational mispricing, rational reward, 152–153 K Kahneman, Daniel, 164 Kelly criterion, 216 Keynes, John Maynard, 99 L Large US endowments, asset allocation (evolution), 35f Last-decade performance, flatness, 119 Law of small numbers, 164–165 Leibowitz, Marty, 12, 36 Leverage, 156, 197 Leveraged buyout funds, impact, 95–96 Leverage risk management, 210 Liability matching, 206 long-duration bonds, demand, 73–74 Lifecycle investing, theories, 30 Line-item thinking, 168 Liquid alternatives, 106 Liquid ARP, 201 Liquid asset class, 118 premia, 51, 156 Liquid assets, 24, 156 Liquidity, 101, 102 Liquidity risk premium proxy, 101 Liquid public assets, 101–102 Listed real estate, direct real estate (comparison), 95 Long horizons, 181–182, 197 return, 236–237 Long-run return sources, 151–153 conviction/patiences, sustaining, 163 pyramid, 52f Long/short alternative risk premia variants, 8 Long-short value strategy, risks/pitfalls, 114–115 Long-shot bias, 136 Long/shot sides, valuation, 116f Long-term corporat bond returns, 75 Long-term per-share dividend/earnings growth, lag, 63 Long-term reversal patterns, 158f Lottery preferences, 156 Low expected return challenge, 15, 42–45 institutional answers, 47f investor responses, 27, 45–47 storyline, change, 79–80 Low expected returns, 15, 17–21 impact, 249–250 Serenity Prayer, relationship, 3–6 Low-for-longer policy rates, 55 Low-risk strategies, 131–137 LTREV Factors, 114 M Machine learning, 170, 183b–184b Macroeconomic exposures, 197–198, 200 Macroeconomic sensitivities, 199f Madoff, Bernie (returns), 167 Manager-specific alpha, 9 Market, 40 inefficiency, 143 liquidity, 87 moves, expectations, 126 risk, management, 214–216 yields, anchor, 19 Market beta, 231 exposures, problems, 114–115 Market risk premia (MRP), 146 Mark-to-market pricing, 89, 98 Marshmallow tests, 164 Maverick risk, 194, 210 Max expected utility, equation, 177 Mean reversion, appearance, 19 Mean-variance optimization (MVO), 177–178, 200–206 Medium-term expected returns, tactical timing, 235 Model errors (MVO), 204 Modern Portfolio Theory (MPT), 36, 202b Momentum equity market trail performance, 123f extrapolative strategy, 117–124 monthly/quarterly momentum, 158f opportunities, 247 patterns, 245f style premia, per-decade/century-long SRs, 122f US momentum-based stock selection strategies, cumulative performance, 119f Money losses, 158–160 management process, 40–42 Multi-asset portfolio, variation, 190 Multidimensionality, meaning, 88 Multi-factor strategies, trading (increase), 227 Multi-metric composite, 112 Multiyear procyclic investor flows/mean-reverting returns (connection), 167 Multiyear return chasing, 244–246 Mutual funds, 34, 41f N NCREIF commercial real estate index, real return (decomposition), 100f Net dilution, 64 Net rental yields, overstatement, 93 Net return, maximization, 228f Net total payout yield, components, 64f Net total yield (NTY), 63 Next-decades excess returns, scatter plot/time series, 237f NIPA profits, usage, 240 Non-investment-grade bonds, 74 Non-profit-seeking market participants, presence, 126 Non-standard preferences, 157 Normal backwardation, 86 Normal cash rate, perception, 52 Norway Model, 13, 40, 41 Notional diversification, impact, 188 O Objective long-run return expectations, 61f Off-the-run bond, 102 One-factor alphas, measurement, 140 On-the-run bond, 102 OOS forecasts, 239 Optimal portfolios, information (variation), 205t Option-adjusted spread (OAS), 77 Organizational commitment, increase, 168 Outcome bias, Serenity Prayer (contrast), 5–6 Out-of-the-money (OTM) index, 212 short-dated deep-OTM index, rolling, 213 Overdiversification/diworsification, danger, 193 Overtrading, 243 P Passive investing, active investing (contrast), 140–141 Passive money management, 40 Path-dependence, role, 43 Patience adversity, conviction (sustaining), 164–169 impatience, causes, 164–166 investor patience, enhancement process, 167–169 problems, 167 sustaining, 163 Pension fund balance sheet, terminology, 28–29 Pension plans, problems, 46 Per-decade equity premia, 57–58, 58f Performance metrics, IRR basis, 89 Peso problem, 167 Portfolios, 197f carbon emissions measure, 224 choice, risky assets (impact), 203f construction, 187, 195–196 insurance strategies, 209–210 investor construction, 177–178 macroeconomic exposures, 197–198, 200 optimal portfolios, information (variation), 205t portfolio-level MVO, usage, 201–203 rebalancing strategies, 114 return/risk assumptions, 201t return sources, classification, 146–147 review, broadness/infrequency, 168 top-down decisions, 195–200 total portfolio, illiquid share, 196–197 volatility, 214–216 Predictive techniques, 173, 180–183 Price-scaled predictors, usage, 240 Private assets, 88–101 classes, valuation/expected return data (absence), 101 performance, 99–100 Private credit, 75, 88 Private equity (PE) A-B ex-post/ex-ante edge (weakening), 97f burnout, returns, 95–96, 98 funds, returns (earning), 232 illiquid alternative asset class, 88 managers, fee pressure, 96 Private market returns, IRR basis, 90 Probability distribution, reshaping, 209 Proprietary alpha, 51, 140 Prospect theory (Kahneman-Tversky), 157 Prudent Man Rule, 36 Public flows, importance, 162 Public pension plans, impact, 46 Pure alpha, 232 Put strategies, trend strategies (contrast), 210–213 Q Quality-adjusted house price appreciation, 93 Quality-minus-junk (QMJ), 132, 134, 136 performance, 134f Quality strategies, 131–137 R Radical Uncertainty (Kay-King), 216 Rational risk premia, 155–158 Real asset returns, 100 Real cash rates, 53, 55 Real cash return, average inflation (relationship), 53f Real estate illiquid alternative asset class, 88 returns, 94 Real estate investment trusts (REITs), 95 Real income growth, 94 Realized asset class return, decadal perspective, 25f Realized asset return, windfall gains, 17f Realized nominal returns, 46 Realized real return (60/40 stock/bond portfolio), 19f Real short rates, gold price history (relationship), 85f Real yields (forward-looking equity premia), 59–62 Rearview-mirror expectations, 17–21 Rebalancing, 114, 192 Regression, 180, 182–183 Replacement rate (75%), annual savings rate (requirement), 44f Responsible investing, framework, 220f Rethinking the Equity Risk Premium (Ilmanen), 56 Retirement, savings (calculation), 30 Returns active returns, alpha (relationship), 139–146 constant-varying expected returns, time-varying expected returns (contrast), 180–181 cumulative excess returns, comparison, 71f cumulative return, 129f enhancement, risk management (impact), 216b–217b equation, 174 ESG investing, impact, 221–223 excess returns, historical bond yields (relationship), 70–71 expected real returns, 19f, 54f expected return, equation, 176 fair split, 232–233 future excess returns, 238f generation process, 174–175 historical average excess returns, 75–77 historical performance, 111–112 improvement, 8–9 investor demands, 175–177 medium-term expected returns, tactical timing, 235 multiyear return chasing, 244–246 net return, maximization, 228f private equity (burnout) returns, 95–96, 98 rolling relative return, 166f smooth returns, 167–169 Reversal patterns, 227, 245f Risk, 208–210 adjusted active return, subtraction (equation), 179 aversion, increase, 160 level, investor determination, 249–250 management, 187, 207 perception, 197 rational reward, 152–153 risk-based explanations, 110, 126 risk-mitigating strategies, 213 risk-mitigating strategies, performance, 213t risk-neutral hypotheses, 128 risk-reward trade-off, 45 Risk-adjusted return (information ratio), 80 patience, enhancement, 168–169 Riskless arbitrage, 102 Riskless bonds, yields, 16 Riskless cash return, 52–55, 153–155, 153f Riskless long-term yields, historical perspective, 21–24 Riskless rate, 16 Risk parity 60/40 stock/bond portfolio, contrast, 188–189 investing, 179 Risk premia, 16, 153–158 annual excess returns/Sharpe ratios, 9f bond risk premium, 69–74 generic risk premium (1/price effect), 126 Rolling relative return, 166f Roll, Richard, 178 S Safe assets, demand, 73–74 Samonov, Mikhail, 111 Samuelson's dictum, 145 Saving glut hypothesis, 23 Saving/investment plan, setup, 29 Scheidel, Walter, 154 Seasonal strategies, 103 Secular low expected return, challenge, 15 Selection biases, 170, 223 Serenity Prayer, 3–6 Sharpe ratio (SR), 9f, 120f, 133 A-D scatterplot multi-asset Sharpe ratio, 156f ESG-Sharpe ratio frontier, stylized example, 222f increase, 120, 191f, 242f long-run Sharpe ratios, 112t predictor basis, 241f underperformance, frequency, 165f Sharpe, William, 175 Short horizons equity, 241 long horizons, contrast, 181–182 Short-selling constraints, 152 Short-term bill yields, history, 70, 70f Short-term reversal, 117 Simple expected real return, 7f Size premium, 107b Skew, A-D scatterplot multi-asset Sharpe ratio, 156f Skewness preferences, 155 Slippage, 228 Small numbers, law, 164–165 Smart beta factor investing, 8 Smart money, 121 Smoothing service, impact, 98–99, 99f Smoothness preference, 99 Smooth returns, 167–169 Soros, George (examination), 149f Sorting methods, regression methods (contrast), 182–183 Sovereign wealth fund, perception, 33 Stable-minus-risky (SMR) factor, 134, 136 Stable-minus-risky market-neutral (SMRMN), 134, 136 Standard & Poor's 500 (S&P500) Berkshire Hathway, rolling relative return (contrast), 166f returns, 24, 76 St.

China's Great Wall of Debt: Shadow Banks, Ghost Cities, Massive Loans, and the End of the Chinese Miracle
by Dinny McMahon
Published 13 Mar 2018

Hardly anyone was doing the sort of vetting that Carnes and Huang were doing—which sometimes was as simple as visiting the factories to make sure companies were actually producing what they claimed—so the lies went undetected. “We were watching the market explode, but we wouldn’t buy anything, because we didn’t trust the numbers,” Carnes told me. And so, after share prices doubled in 2009, Carnes and Huang decided to short Chinese companies instead. Short selling is a way to make money if share prices fall. Generally speaking, short sellers, or “shorts”—and particularly activist shorts like Carnes and Huang who publicize the reasons why they believe share prices should fall—are reviled by companies and investors and anyone else with an interest in keeping share prices buoyant.

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See enforcers and enforcement pollution, 38–39, 98, 154, 186–87, 207 population, 171–73 price fixing, salt, 145–46 private companies Chinese interests and, 13–18 proliferation of, 103 raising money, 99–100, 130 product safety scandals, 204–5 propaganda department, Erzhong, 46 proprietary technology, 180 protectionism, 43, 183–87 protests of confiscated goods, 157–61 corruption, 150 of expropriation of land, 75–76, 81–82, 83 investment failures, 112 of laid-off workers, 34–35, 36 political system and, 202–3 pollution and product safety, 207 Pu Guolin, 40 Pudong, 57–58 Q Qiao Runling, 59 Qiu Zhiming, 178 quotas, 167 R R&D spending, 180–83 Raleigh, NC, 69–70 Rather, Dan, 118 Ravens, Robert, 191–93, 197–98, 203–4 Reagan, Ronald, 175–76 real estate, companies investing in, 131, 189–90 Ren Hongbin, 34 resources, for aging population, 171–73 resources, imported clothing brands, 138 cotton and wool, 138 iron ore, x-xi state-owned firms and, 28 “restless hand,” 12 Rio Tinto, 28 Rise and Fall of Nations, The (Sharma), xiii risk taking at Erzhong, 29 investments, 113 WMPs, 110 See also innovation Romero, George A., 35 rules, relationship to, 23–24, 103, 109 S salt market, 144–47, 151–52, 157–61 savings, 123, 176–77 Schultz, Howard, 197 shadow banking, 105–12, 135–36 Shandong Province, 37, 138 Shandong Ruyi Science and Technology Group, 138 Shang Fulin, 130 Sharma, Ruchir, xiii Shenfu, 72 Shenyang, 125–26 Shenzhen,180 Shi Changxu, 27–28, 31–32 Shiyan, 39–40 short selling, of Chinese companies, 4 Sichuan Province, 25, 45, 150–51 silver mining, corruption in, 1–6, 15–18 Silvercorp Metals, 3–6, 15–18 Sinomach, 33–35 skyscrapers, 125–28 smartphones, 67 social stability, 12, 36, 208–11 commitment to, 137 corruption, 150 land expropriations, 76 threats to, 153–54, 155 Soros, George, xv South Carolina, 168 South Korea, 47 Springs, Leroy, 166 Stahl, Lesley, 66 Starbucks, 197 state vs. private interests blurring of, 11–13 police and, 5, 6–7 state-owned firms, 6–7 China vs. elsewhere, 30–35 debt held by, 31–32 housing for, 84–86 lending and, 130 purpose of, 28 steel industry, 43, 183–86 stimulus, xiii-xiv stimulus (economic), 80, 108, 124 subprime mortgage crisis, 69–73, 86–87, 108, 111, 194 subsidies, 38 land, 41–42 paper, 184 steel industry, 184 Subsidies to Chinese Industry (Haley), 184 Sun Liping, 150, 155–56 supply-side structural reform, 175–78 Switzerland, pen industry, 179–80 T Taobao, 206 Tasmania, 191–93, 204 taxes, 19–21 construction, 65–66 incentives, 67 infrastructure, 73 land development, 92 Liaoning Province, 21–24 salt and, 144–45 urbanization and, 54–56 zombie companies, 36–37 teddy bears, lavender, 191–93 Tencent, 180 textiles manufacturing, 166–70, 173–75, 188–90 threats.

When the Wolves Bite: Two Billionaires, One Company, and an Epic Wall Street Battle
by Scott Wapner
Published 23 Apr 2018

See also financial crisis of 2007–2008 Greenberg, Herb, 59, 60, 81, 84, 85–86, 154 Greenberg, Sally, 143 Greenlight Capital, 37, 58, 61–62 Greenmail, 125 Green Mountain Coffee, 59, 64 Grisham, Michelle Lujan, 144 Grossman, Mike, 22, 23, 24, 25 Gruntal & Company, 117 Gundlach, Jeffrey, 67–68 Hallwood Realty, 33, 34, 101, 102, 106–107 Hammermill Paper, 121 Handler, Richard B., 203–206, 208 Harbor Investment Conference (2014), 152 Hartman, Jo Ann and Stuart, 42–43 hedge funds, 2, 62, 88, 127, 164, 211 assets under management, 2 human investors vs. wolf packs, 3 redemptions to investors, 30, 33, 180, 210 See also shareholder activism Heidrick and Struggles search firm, 51 Hempton, John, 83–84, 85, 100, 172–173 Henderson, Barbara, 152 Herbalife, 4, 7, 9, 15–22, 64–69, 96, 104, 106, 107, 176, 179–180 annual meeting of 2012, 66 Best Defense pill, 110 board seats of, 131, 148 business model changes, 163 Chairman’s Club, 20, 45, 65, 80, 82 as changed from earlier years, 212–213 class-action suit against, 49, 51, 53 complaints against, 144–145 consumer base of, 97–98 (see also Herbalife: sales) early products, 45 FBI/Justice Department investigation of, 155, 167 financial results in 2012 and 2013, 131, 139, 140 fine imposed by FTC, 198 Formula 1 meal replacement, 79 founder of Herbalife International Inc., 41, 44 Founder’s Circle, 149 FTC investigation of, 154, 159, 190–191, 203 (see also Herbalife: settlement with FTC) growth of, 57, 58, 79, 200 independent compliance auditor (ICA) for, 201 investigative report by Richard/Schulman, 20 market cap, 209 membership of Preferred Members and Distributors, 200 “Newest Way to Health” program of, 48–49, 53 nutrition clubs of, 18–20, 58, 65–66, 158, 160, 161, 192 overseas markets of, 48, 55, 57, 58, 89, 163, 195 President’s Team Summit, 66–67 as pyramid scheme, 13, 19, 20, 21, 46, 54, 60, 75, 80, 81, 83, 89, 90, 109, 140 143, 145, 146, 150, 151, 161, 164, 167, 190, 194, 196, 197, 198, 199 recruiting by, 54, 77, 80, 181, 189–190, 191, 192, 197, 198, 213 sales, 48, 54, 59, 78, 79, 80, 81, 96, 97, 131, 164, 191, 198, 201 sales leaders, 163–164, 192 SEC investigation of, 96 settlement with FTC, 194–195, 196, 197, 198, 200–201, 205, 209 shutting down, 189–190 stock prices of, 48, 53, 54, 55, 57, 60, 73, 76, 81, 82, 83, 84, 85, 88, 90, 96, 97, 98, 100, 111, 113, 130, 132, 133, 134, 139, 140, 142, 148, 150, 151, 152, 154, 155, 161, 163, 164, 167, 180, 193, 195, 197, 206, 214, 215 sued by California attorney general, 46, 47 survey commissioned by Paul Sohn concerning, 135–136 taken public/private, 48, 49, 53, 112, 209 testimonial video about, 191–192 top distributors, 52 training materials of, 20–21 video about distributors of, 196–197 website about Ackman unveiled by, 178 winner/loser concerning, 212–213 See also short selling: of Herbalife shares Herbalife Foundation, 211 Herera, Sue, 60 Hertz, 184 Hilal, Paul, 17, 72 Hirsch, Douglas, 75, 76 Hispanic Federation, 142, 143 Hispanic Magazine, 145 Hispanics, 135, 142–143, 145, 189, 190 Hoffman, Alan, 176–178, 192, 194, 196, 197, 207 Howard Hughes Corporation, 137 HRPT Property Trust, 102 Huffington Post, 178 Hughes, Darcy, 41 Hughes, Mark Reynolds, 41–43, 44, 45–47, 53, 84 and Ackman, 85 death of, 41–42, 48, 52 testifying before Congress, 46–47 Iberra, Mickey, 145 Icahn, Carl C., 1, 2, 33–35, 110–129, 131, 142, 150, 156, 182, 183 and Apple, 184–188 buying Herbalife stock, 110–111, 207, 208–209 calls to CNBC, 104–109, 112 cash hoard of, 100 at Delivering Alpha conference, 147 father of, 120 and FTC settlement, 199 getting out of Herbalife, 203, 204, 205, 206–207 and Herbalife board seats, 131–132 Icahn Manifesto, 118–119 in medical school, 116 as poker player, 115, 116 taking Herbalife private, 203, 209 uncle of (see Schnall, Elliot) wealth of, 127, 128, 129 See also Ackman, William A.: and Icahn; Johnson, Michael O.: and Icahn Icahn & Company, 118 Icahn Partners, 127 Iger, Robert, 51, 52 Indago Group, 12, 64 Ingram, Robert, 175 insider trading, 125–126, 132–133, 169 Intelligent Investor, The (Graham), 26–27 interest rates, 2, 156 investment banks, 77, 126, 203, 205, 206 iPhones, 184, 187, 188 Ira W.

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See also Federal Trade Commission; Securities and Exchange Commission Reuters, 155 Rich, Jessica, 146 Richard, Christine S., 10, 12–13, 14, 15, 17, 18, 19–20, 64–67, 79, 160 RJR Nabisco, 126 Robin Hood Investment Conference, 149, 190 Rockefeller Center, 29 Rogers, Kenny, 46 Rory, Kim, 97 Roth, William V., 47 Rudman, Warren B., 47 Russia, 58 Salix Pharmaceuticals, 171 Sánchez, Linda T., 137–138, 144 Sánchez, Loretta, 144 Sard, George, 167–168 Saxon Industries, 120–121 Schaitkin, Keith, 34, 35, 111 Schechter, David, 186 Schiller, Howard, 181 Schnall, Elliot, 116–117, 118 Schuessler, Jack, 36 Schulman, Diane, 12, 20 Schultz, Howard, 40 Sears department store chain, 37 Securities and Exchange Commission (SEC), 1, 10, 63, 64, 88, 91, 96, 112, 121, 125, 128, 139, 149, 150, 170, 205 investigating Ackman, 180 and Madoff, 190 Seyforth, Mark, 43–44 shale gas, 183 shareholder activists, 1–4, 9, 29, 36, 70, 82, 119, 127 impact on corporate culture, 213–214 share prices decreases, 6, 11, 16, 32, 38, 39, 63, 64, 71, 76, 82, 83, 93, 94, 100, 117, 119, 133, 151, 152, 154, 155, 163, 164, 174, 175, 179, 183–184, 187, 188, 193, 206 increases, 2, 3, 32, 36, 68, 70, 71, 84, 85, 88, 96, 97, 113, 129, 133, 134, 139, 140, 148, 150, 161, 165, 168, 169, 171, 180, 182, 183, 184, 187, 188, 195, 197, 211 Kennedy Slide on Wall Street (1962), 117 See also Herbalife: stock prices of; Valeant pharmaceutical company: stock prices of Shaw, Bryan, 133 short selling, 10, 12, 13, 30, 31, 59, 62, 63, 83, 108, 127, 147, 170, 174 of Herbalife shares, 17, 64–65, 66, 68, 72, 73, 75, 76, 109, 147, 148–149, 199, 201–202 and short squeezes, 85, 106, 107, 112, 139, 148, 202, 203, 215 Silverman, Howard, 117 Simplicity Pattern, 121 Singapore, 58 Singer, Paul, 164 Slater, Robert, 120 Slendernow company, 43, 44 Small Business Administration, 62 Société du Louvre, 113 Sohn, Paul, 134–137, 138–139, 143 Sohn special event, 75–81.

Bully Market: My Story of Money and Misogyny at Goldman Sachs
by Jamie Fiore Higgins
Published 29 Aug 2022

For better or for worse, this was now my world. And stocks were now my language. When people asked, “So, what do you do at Goldman?” at first I’d tell them I was a sales trader in Global Securities Services, a group of 200 professionals. If they asked for more information, my answer would produce yawns and glassed over eyes. Terms like “short selling,” “term funding,” and “rehypothecation” were laced with a sedative. To keep it simple, most people know that in the stock market you want to “buy low and sell high.” Well, in my business it was a flip of that order—it’s “sell high and buy low.” People, or more specifically hedge funds and crazy rich people, would sell a stock that they felt was overpriced, expecting it to drop.

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So they sell short at $100 and wait for the price to come down to $60. This wasn’t a given—it’s like when you buy a stock in the hopes it increases in value, you can’t guarantee it actually will. So, if the stock drops to $60, they would buy it back and make the $40/share difference, minus my fee, and I’d return the stock to its original owner. Short selling is a well-established strategy, and although these speculators don’t get it right every time, most get it right enough of the time to post amazing returns to their investors. For others, shorting stock is part of a larger trade. This happens in arbitrage, when funds buy and sell securities simultaneously in order to take advantage of differing prices for the same asset.

The First Tycoon
by T.J. Stiles
Published 14 Aug 2009

The first payment of $60,000 would be made in December, with two more scheduled in early 1856. To add injury to insult, the Yankee Blade soon went ashore on a reef at Point Arquilla and proved to be a total loss.79 On top of that, the Accessory Transit share price slid still lower, allowing the Commodore to “buy in” and profitably “cover” the short-selling contracts he had made in January (to use the jargon of the time). He paid as little as 16¼ for each share that he now sent over to Charles Morgan, who had agreed to pay 25 whenever Vanderbilt chose to deliver them.80 The Commodore had not only forced his foe to acknowledge he was right, he also had forced Morgan to pay him three times—in an inflated price for his steamships; in cash for his claims; and in the stock market.

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Amid a howling blizzard that piled up snow in horse-high drifts in the streets, Vanderbilt left for Washington to press for the transfer of the mail contract to Accessory Transit. On his return to New York, he continued to buy shares. “The Commodore does not hesitate to predict that the stock will go as high, if not higher, than it was when he left it, say 32, and that it is worth much more,” the New York Tribune reported. Morgan had been short-selling it, but Vanderbilt's bull campaign now forced him to cover his sales contracts at a loss.8 An intense cold followed the snowstorm. Horse-drawn omnibuses (their wheels replaced by sleigh runners) slid through the streets almost empty of passengers as temperatures plunged to two degrees below zero.

…

Vanderbilt did not know either that, on February 18, President Rivas obediently revoked the Accessory Transit charter and granted the rights to Randolph; and that a copy of the decree was rushed to Morgan by a private messenger, who reached New York a little over a week later. Vanderbilt had walked into a gigantic trap.10 STARTING IN FEBRUARY, Charles Morgan began to act very strangely. He was never a man to repeat a failed strategy, yet again he began to short-sell Accessory Transit stock. He sold it for as little as 21, on terms that gave him up to four months to make delivery. Vanderbilt took every share that Morgan offered. The financial columns of the press found Morgan's strategy mystifying. “As the length of the Commodore's purse is proverbial,” wrote the New York Tribune, “the result of such a contest can scarcely be doubted.”

Why We Can't Afford the Rich
by Andrew Sayer
Published 6 Nov 2014

They may use hedging to protect themselves against losses, but they mostly use financial instruments aggressively rather than defensively, profiting from leveraged speculation on changes in the prices of assets, whether they be stocks, bonds, currencies, commodities like gold, copper or oil, or derivatives, and by buying up bankrupt and undervalued companies. They seek to profit from both rises and falls in prices, by buying assets in the hope that they will rise in price, or short-selling where they expect prices to fall. These are not merely responses to market shifts but ways of influencing those shifts, for example by inflating bubbles: they are weapons, not tools, as Ewald Engelen and co-researchers argue.137 On ‘Black Wednesday’, 16 September 1992, multi-billionaire George Soros made £1 billion by short-selling sterling – in anticipation of its being ejected from the European Exchange Rate Mechanism. In effect, he saw that the pound was overvalued, took on the Bank of England when it made frenzied efforts to defend the currency, and won.138 When the previously much-lauded Northern Rock bank got into trouble in 2008, hedge funds short-sold its shares and then bought them up when they’d hit rock bottom.139 When, in 2013, the UK’s Royal Mail was privatised by issuing shares at far below the market price, it was an aggressive hedge fund that became the largest shareholder.

…

In the countries where interest rates are low, perhaps as a matter of policy for supporting investment, the carry trade switches funds away, undermining such policies. Attempts at national self-determination of economic development are frustrated. Speculators can make money on both sides of a bubble – not only buying in order to sell on the upside, but ‘short-selling’ on the downside. The latter practice works like this Imagine that prices of certain common, frequently traded shares, such as those of an oil company are expected to fall or already falling. The short-seller agrees to borrow some shares from an existing owner for a period of time, say six months, for a fee.

I Love Capitalism!: An American Story
by Ken Langone
Published 14 May 2018

See also specific stores Dole, Bob, 171 Donaldson, Bill, 183 Donovan, Dennis, 214 Drelles, Speros “Doc,” 126–27, 143–44, 168 Drexel, 79, 160 Dreyfus Corporation, 163, 169 Dreyfus Fund, 169 Druckenmiller, Fiona, 179 Druckenmiller, Stanley, 143–44, 168–69, 179, 265 Dunne, Frank, 78 Duquesne Capital, 169 Educator & Executive Life Insurance Company, 124 Edwards, Charlie, 123, 128–29 El Salvador, 263–64 Elderfields Road (Manhasset), 84–85, 117, 123 Electronic Data Systems (EDS), 111, 147, 152, 184 co-founder of, 167 and Collins Radio takeover, 102–3, 107–8 investing in, 102, 108, 123 IPO of, 91–99, 101–2 short-selling stocks of, 112–13 Elfun Trusts, 67–69 Eli Lilly, 144–45, 169, 255 Enron scandal, 186, 217 entrepreneurial ventures, 6–9, 23–26, 265 Epic Systems, 256 Epstein, Lou, 64–67 equipment trust certificates (ETCs), 36 Equitable Life, 64 and Bill McCurdy, 34–36, 46, 88–89 pays NYU tuition, 44 working at, 32–41, 44–47, 52–54, 56–57, 59 equities, 56, 73, 111, 117, 122, 160, 255 Erlbaum, Gary, 123, 129–31, 133, 163–66, 168, 265 Erlbaum, Steven and Michael, 129–30, 265 Evans Products, 81–83, 129–30 F.

…

Patrick’s Cathedral (New York City), 239, 243 Salem Leasing, 241, 252–53 salesmen, 54–64, 75–79, 105, 111, 125, 180, 250–51 Salomon Brothers, 90, 92, 112, 175, 247 Samuelson, Paul, 13 San Diego, California, 117–19, 121, 137, 144–45, 222 San Jose, California, 147–48 Sanders, Bernie, 249 Sands Point, Long Island, 117, 197 Sato, Steve, 121, 144, 235 Schapiro, Mary, 194–95, 200 Schenectady, New York, 209–10, 213 Schwartz, Alan, 114–15 Scott, Blaine, 98–99 Scruggs, Leonard Coe, 125 Sealy, 124, 139 Sears, 64, 254, 258 Seaver, Harry, 73 securities, 33, 41, 45, 50, 55, 57, 81, 117, 183, 192, 248 Securities and Exchange Commission (SEC), 59, 102–7, 119–21, 183 Security Pacific Bank (Los Angeles), 158–59 September 11, 2001, 185 Sexton, John, 197 Shearson, 163 Shearson, Hammill, 26–27, 69 Showalter, Paul, 17 Shroyer, Bruce, 78 Siemens, 181, 196–98 Sigma Chi fraternity, 13, 15–17, 24–25 Sigoloff, Sanford “Sandy,” 132, 138, 140–43, 145–52, 155 Silverman, Henry, 176–77 Singer, Paul, 223 Six Sigma management, 214 Skadden, Arps, 141 Sleeper, Matt, 24–26 Smilow, Joel, 179 Smith, Austin, 124 Smith, Bryan, 153 Smith, Derek, 168 Smutny, Rudy, 90, 108–10, 112, 122 Snowden, Herb, 124 socialism, 249–50 Somerville Lumber, 130 Southeast Bank (Miami), 155 Soviet Union, 46 Specter, Arlen, 171 Spector, Joe, 40–41 Spencer, Frank, 178–79 spirituality, 237–39, 242 Spitzer, Eliot, 187–88, 190–93, 195–96, 198–203, 217 Sporkin, Stanley, 105–7 stabilization rule, 103, 106–7 Standard Oil of New Jersey, 69–74 Standel, Paul, 124 statistics, 36–38 steel industry, 18–19, 56, 68–69, 184 Stein, Howard, 169 Steiner, Al and Phil, 58–63, 65 Steinhaus, Al, 166 Stern, Leonard, 175 Stirling Homex, 111–12 stock market, 161 analysts of, 71–75 “bear,” 124–25 “bull,” 192 computerization of, 183–84 downturns in, 52, 56–57, 59, 112, 188 rises in, 56, 192 See also New York Stock Exchange (NYSE) stocks common, 128–29, 155, 161 and “cram down,” 141 dividends for, 123, 144 inflating prices of, 187 large-cap, 255–56 nonqualified owners of, 119–21 options, 208, 210, 217, 219–20, 231, 245–46 preferred, 129, 155, 160–61 and proxy dispute, 119, 121, 223–25 publicly held, 131, 133–34, 139–40 secondary offerings of, 103 short selling of, 112–13 small float for, 112 strike price of, 208, 219–20, 246 value of, 93, 95, 98, 112–13, 131, 139–40, 144, 217 See also initial public offerings (IPOs); New York Stock Exchange (NYSE); specific companies subprime finance companies, 166 Summers, Bill, 189 Suozzi, Tom, 199 supply and demand, 14, 22–24, 57 Taft Stettinius & Hollister, 62–63 takeovers, unfriendly, 101–2, 150–51 Taussig, Andy, 224–25 taxes, 2, 86, 96–97, 138, 185, 200, 220, 252 Teague, Tommy, 241, 252–53 technology companies, 101, 118, 164, 167–68, 181, 185, 196–98, 244, 255–57.

Ludicrous: The Unvarnished Story of Tesla Motors
by Edward Niedermeyer
Published 14 Sep 2019

Unabashed to be taking an unpopular position and utterly convinced that economic fundamentals would win out in the long run, Spiegel embraced the antagonism, sparred with the company’s fans on social media and in comment sections, and began acting as a clearinghouse for every piece of news and analysis that was critical of Tesla. The intense passions on both sides fueled each other, creating an increasingly polarized discourse around the company. Like Spiegel, Jim Chanos also started short selling Tesla stock during the initial 2013 run-up, working from the thesis that its software-style management and culture were a poor fit for the auto manufacturing business. As time went by, his perspective also shifted, from simply being skeptical of Tesla’s ability to justify its valuation to actively suspecting serious cultural issues at the company.

…

The claim that I had “fabricated” the story was obviously contradicted by NHTSA’s statement and Tesla’s subsequent decision to comply with the regulator’s demand that it modify its Goodwill Agreements. Nor did Tesla provide any evidence of any kind to back its claim that I had “fabricated” any part of the story, beyond its similarly fact-free speculation about my motives. The suggestion that I had reported on (or “fabricated”) this issue to financially benefit from “short selling” Tesla’s stock was also presented without evidence. This was an accusation that Tesla’s supporters had leveled at me and others in the past. I had denied that I was shorting the stock before, but in hopes of making it abundantly clear that Tesla’s accusation was false, I took the unusual step of writing a blog post attesting “under penalty of perjury” that I had no financial interest whatsoever in the success or failure of Tesla.

Rentier Capitalism: Who Owns the Economy, and Who Pays for It?
by Brett Christophers
Published 17 Nov 2020

I will say more in due course about the nature of the rents earned on these various asset classes (both new and old), but it is worth noting here that, in many cases today, the rents are literal. Assets are, in effect, hired out – like an apartment, they are lent by their owners to third parties, the latter paying the former a fee for the temporary use of the asset. One scenario in which this occurs, for instance, is in short selling – a market activity that has received a particularly bad press in recent times. Short selling usually involves selling a financial asset that has been borrowed (rented) for a fee from another party before later buying it back at – in theory – a lower price, and then returning it to the lender. Another pertinent example is a repurchase agreement (‘repo’ or ‘reverse repo’), which involves actually buying, rather than borrowing, a financial asset, but which in reality also amounts to the temporary renting of that asset, inasmuch as the buyer commits to sell the asset back to the original holder at an agreed price at a future date, or upon demand.

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See commercial property; residential property property companies, 336, 345, 348, 356–358; tax status of, 355 property developers, 327–330, 359–360 property taxes, 350, 354 (néo-)propriétarisme, 23–24 Prudential (financial institution), 7–8 Public Accounts Committee, 115, 257, 260, 261, 266, 285 Public Administration and Constitutional Affairs Committee of the House of Commons, 230, 264 public-sector outsourcing, 230, 236–238, 243–249, 263–266, 274 Pugatch, Meir, 154 Puttnam, Lord, 155 quantitative easing (QE), 72–73, 79, 348 Quercus Management, 156 r > g formula, 45, 380, 392–392, 409 radio spectrum, xv–xvi, 295–297, 307–308 rail sector: land sales, 346; outsourcing, 235, 258–259; privatization of, 280–283, 346 Railtrack, 280, 290 Rathod, Sandeep, 174, 175 Real Estate Investment Trusts (REITs), 355–358 Reckitt Benckiser Group, 7, 148–149, 172, 177 Registered Community Design, 146 RELX, 7, 148, 172 Remainers, Brexit and, 381–384, 418 remunicipalization, 404–405 renationalization, 405 Renfrewshire, Scotland, 346 rent: definitions and understandings of, xvi–xvii, xx–xxvi; main sources of, xxx–xxxi rentier capitalism, xvii–xix, xxvi–xxix, xxxvi, 1–3, 5–6, 22–23, 39–40, 382–383, 399–401, 409, 419–421 rentierization, of the UK economy, 5–6, 20–22 Rentokil Initial, 9 rent-seeking, 170–178, 289–290, 297–299, 352–353 repurchase agreements (repos/reverse repos), 58–59, 68 reserves (natural resources), 99–102 residential property: as source of rents, 42, 333–334, 364–365, 368–369; inequality and, 43, 46, 47, 366–367, 371–373; ownership of, 46, 88, 357, 365–367, 369–370; price of, 84–85, 331, 348, 352; taxation of, 350, 354, 458n66; value of, 349–350, 357 Resolution Foundation, 375 Reuben, David, 363, 364 Reuben, Simon, 363, 364 revenue tax, 224–226 Rhodes, Chris, 280 Ricardo, David, xx, xxii, 66 Ridley, Nicholas, 319 Riesewieck, Moritz, 215 Right to Buy, 336–337, 344–346, 373–376, 457n51 Rightmove, 9, 184–186, 188, 198, 199, 222 Rio Tinto, 7, 106–109, 432–433n15, 433n24 River Medway, 111 Roberts, Michael, xxii, 35 Robinson, Joan, 298 Rogers, Will, 347 rolling-stock operating companies (ROSCOs), 281, 283 Rolls-Royce Holdings, 9, 148, 172, 281, 282, 437n19 Rouhani, Fuad, 108–109 Rover Group, 281, 282 Royal Bank of Scotland Group, 7 Royal Dockyards, 282 Royal Dutch Shell (Shell), 7, 101, 106–109, 111–112, 132–133, 135–136, 234, 432–433n15 Royal Institution of Chartered Surveyors, 342 Royal Mail, 282, 284–285, 293, 320–321, 329, 356, 403 Royal Navy, 256 Royal Ordnance, 282 royalties: intellectual property rents, 141–143, 162; natural-resource rents, 96, 109, 116–117 Russell, Bill, 165 Rustin, Michael, 3 Sage Group, 9 Sampson, Anthony, 4 Samsung, 174, 228–230 Sandbu, Martin, 207–209, 211, 216, 222 Sanders, Doug, 124–125 Saudi Arabia, 112–113 Saudi Aramco, 113, 433n29 Savills, 367 Sayer, Andrew, xxii, xxviii–xxix, 23–24; Why We Can’t Afford the Rich, xix scarcity: of assets, rent and, xxii, xxiv–xxv; of capital, financial rents and, 64–66, 73–74, 76–81 Schlumberger (oil service company), 239 school academization, 236, 237, 268 Schumpeter, Joseph, 171; Capitalism, Socialism and Democracy, 31–32 Scottish National Investment Bank, 394 Scottish Water, 280 Scott-Ram, Nick, 156 Sealink, 282 securitization, 56–57 Segro, 9 Self, Will, 337, 366, 375–376 Sell, Susan, 152 Serco, 239, 248, 250, 256, 273 Servier (pharmaceutical company), 176 Severn Trent, 9, 288, 290, 316, 329–330, 416 shadow state, 268–269 Sharing the Success (Thompson), 327–328 Shaxson, Nicholas, 109–110, 136 Shire (biopharmaceutical company), 11 short selling, 58 Shrubsole, Guy, 352–353 Sinclair, Matthew, 204, 206 Singh, Manmohan, 59 Single Tender Actions, 256 Sky TV, 11, 305 Smith, Adam, xx, 30, 394 Smith & Nephew, 7, 148, 271 SmithKline Beecham, 155–156 Sonny Bono Copyright Term Extension Act (1998), 170 Sony, 228–229 Special Purpose Vehicle (SPV), 260, 262 Srnicek, Nick, 402 SSE plc, 9, 288 Stafford, Philip, 193 Stagecoach-Virgin Group joint venture, 273 stamp duty, 61 Standard Chartered, 7 standard industrial classifications, of economic activities, 13–14 Standing, Guy, xix, xxii, xxviii–xxix state investment bank, 394 state schools, 236 Stephens, Philip, 388, 408–410 Stern, Richard, 162–163 Stewart, Rory, 274 Stiglitz, Joseph, 163, 171, 173 stock markets, 179–181, 183 Strauss, Delphine, 41–42 Sturgeon, Nicola, 394 Subway (restaurant franchise), 141–143 ‘suicide bidding’, 263–264, 266 Summers, Andy, 44 Sunstein, Cass, 212 supplementary protection certificate (SPC), 177–178 Takeda, 11 TaskRabbit, 184, 186, 216 tax avoidance, 62–63, 222–224, 322–323 tax havens, 27, 61–63 Tax Justice Network, 27 tax rates, 61–62, 117–118, 123–126, 168–169, 225, 389, 391, 454n113 tax receipts, on North Sea oil and gas production, 123–124 tax relief, 26–27, 117, 167–169, 321, 353, 458n75 Tax Watch UK, 224 taxation policy, and rentier capitalism, 388–393 taxes: capital gains, 26–27, 60–61, 350, 427n74, 458n66; corporation, 61, 80–81, 119, 134, 167–168, 223–224; digital services, 224–226; inheritance, 353, 458n75; land value, 354–355; on oil and gas production, 117–119; Petroleum Revenue Tax, 124, 134; property, 350, 354; revenue, 224–226; value-added, 61, 119, 224 Taylor Wessing (law firm), 159, 163 Taylor Wimpey, 336, 356, 359–360 telecommunications sector, xv–xvi, 8, 289, 295–300, 302–304, 305, 307–308, 309–310 Telefónica S.A., 288, 297, 310 Telewest, 305 1099 job, 443n77 Tenreyro, Silvana, 37 Tesco, 7–9, 356, 360–361 Thames Tideway Tunnel, 313–314 Thames Water, 288, 293–294, 310–311, 313–314 Thatcher, Margaret, 22–23, 25, 69, 114, 117–118, 122, 124, 126–131, 202, 236–237, 279, 304, 313, 319, 335, 344, 354, 374–376 Thomas Cook, 280, 291 Thompson, E.P., 22–23 Thompson, Peter: Sharing the Success, 327–328 3 Group, 288 3G services, 296 Thrift, Nigel, 56 Thurow, Lester, 159 Thwaites, Gregory, 37 Tilford, Simon, 352, 354 Tizard, John, 264–265, 270 Tooze, Adam, 56, 59, 135 Topography Right Directive (1987), 152 The Tote, 282 Tous Rentiers!

Why I Left Goldman Sachs: A Wall Street Story
by Greg Smith
Published 21 Oct 2012

A lot of Daffey’s popularity stemmed from senior management’s sheer awe at his client base, which consisted of the biggest, smartest macro hedge funds in the world. Hedge funds are investment funds that can undertake a wide range of strategies, both going long (buying an asset with the view that it will rise in value) and getting short (selling an asset without actually owning it, betting it will go down in value). Because these funds are not highly regulated, they are open only to very large investors such as pension funds, university endowments, and high-net-worth individuals. Macro hedge funds—named for their tendency to bet on big-picture events such as movements in interest rates and currencies, as opposed to stock prices—command exceptional respect.

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If Google were trading at $634, you would say it was trading with a 6 handle. Or, applied to civilian life, “Jim put on so much weight, he is now trading with a 3 handle” (i.e., more than 300 pounds). Hedge fund: An investment fund that can undertake a wide range of strategies, including using leverage and derivatives, both going long (buying) and getting short (selling, without actually owning the asset). Because hedge funds are not highly regulated, they are only open to very large investors, such as pension funds, university endowments, and high-net-worth individuals. High-net-worth individuals: A polite term for people who are mega-rich or loaded. Hit a bid: To sell something at the price the market maker is willing to pay for it (i.e., the bid price).

Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism
by Jeff Gramm
Published 23 Feb 2016

He compounded wealth for himself and his investors at an astounding rate over the next twelve years and never suffered a losing year. Despite this stellar track record, the Buffett Partnerships were very much a work in progress. Buffett was constantly refining his investment style, even toying with short selling and pair trades at one point. As he told the New York Times in 1990, “I evolved. I didn’t go from ape to human or human to ape in a nice, even manner.”1 Buffett learned lessons from his mistakes as well as his victories. His biggest triumph was American Express. It proved to be a major turning point in his career.

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He has to pick Buffett’s brain about Allied Capital. David Einhorn’s short position in Allied Capital became a holy mission. He wasn’t doing it for personal gain: The year he put the position on he pledged half his profits to charity (he ultimately donated them all). And there really is no glory in short selling, even when the target is a scuzzy BDC like Allied. Yet Einhorn not only sunk an ungodly amount of time into the idea, he wrote a four-hundred-page antemortem book about it. The whole thing is a bit mind-boggling. Whether it was Daniel Loeb attacking Irik Sevin’s mother or David Einhorn writing the great American novel about a 3% position in his fund, there was something peculiar about hedge fund managers paying attention to targets in a way that didn’t seem to make economic sense.

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

However, I hold as a general principle that government should, under nearly all circumstances, keep its hands off the free functioning of the marketplace. I wince when the Federal Reserve states its intention to raise asset prices—including “higher stock prices”—apparently irrespective of the level of underlying intrinsic stock values. Substantive limits on short selling are another nonstarter for me. The overriding principle should be: Let the markets clear, at whatever prices that willing and informed buyers agree to pay to willing and informed (but often better-informed) sellers. Individual investors need to wake up. Adam Smith–like, they need to look after their own best interests.

…

If that principle holds in the ETF field—as it has done thus far in its relatively brief history—the substantially higher volatility of the ever-narrower sectors bodes ill for the returns that ETF investors actually earn. ETFs have continued to move away from simplicity and toward complexity. As this trend accelerates (I assume to no one’s surprise), obvious problems have arisen. While leveraged ETFs were designed to multiply the stock market’s gain for the bulls (or multiply its gains for the short-selling bears), it turns out that while the multiplier (now usually triple leverage) works well on a daily basis, it fails to deliver on that goal as days turn to months and then years. For example, the ProShares Ultra S&P 500 ETF seeks to double the return of the S&P 500 on a daily basis. But over the last five years, the ETF has produced a total return of −25 percent, while the index itself provided a return of 10.5 percent.

Paper Promises
by Philip Coggan
Published 1 Dec 2011

In fact, investors can be shown to have a number of biases, such as selling their winning stocks and hanging on to their loss-makers. Efficient markets would allow investors to be able to sell short (i.e., bet on falling prices) as easily as they can bet on rising ones, but in fact regulators impose a host of restrictions on short-selling. History is also full of market anomalies, such as the over-performance of stocks in the month of January or the better performance of smaller companies. It is also hard to argue that markets are always efficiently priced when stocks were worth 23 per cent less on 20 October 1987 than they were worth at the start of trading the day before.

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Rubin, Robert Rueff, Jacques Rumsfeld, Donald Russia Sack, Alexander St Augustine Saint-Simon, duc de Salamis (city) Santelli, Rick Sarkozy, Nicholas Saudi Arabia savings savings glut Sbrancia, Belen Schacht, Hjalmar Scholes, Myron shale gas Second Bank of the United States Second World War Securities and Exchange Commission seignorage Shakespeare, William share options Shiller, Robert short-selling silver Singapore Sloan, Alfred Smith, Adam Smith, Fred Smithers & Co Smithsonian agreement Snowden, Philip Socialist Party of Greece social security Société Générale solidus Solon of Athens Soros, George sound money South Africa South Korea South Sea bubble sovereign debt crisis Soviet Union Spain special drawing right speculation, speculators Stability and Growth pact stagnation Standard & Poor’s sterling Stewart, Jimmy Stiglitz, Joseph stock markets stop-go cycle store of value Strauss-Kahn, Dominque Strong, Benjamin sub-prime lending Suez canal crisis Suharto, President of Indonesia Sumerians supply-side reforms Supreme Court (US) Sutton, Willie Sweden Swiss franc Swiss National Bank Switzerland Sylla, Richard Taiwan Taleb, Nassim Nicholas taxpayers Taylor, John tea party (US) Temin, Peter Thackeray, William Makepeace Thailand Thatcher, Margaret third world debt crisis Tiernan, Tommy Times Square, New York tobacco as currency treasury bills treasury bonds Treaty of Versailles trente glorieuses Triana, Pablo Triffin, Robert Triffin dilemma ‘trilemma’ of currency policy Truck Act True Finn party Truman, Harry S tulip mania Turkey Turner, Adair Twain, Mark unit of account usury value-at-risk (VAR) Vanguard Vanity Fair Venice Vietnam War vigilantes, bond market Viniar, David Volcker, Paul Voltaire Wagner, Adolph Wall Street Wall Street Crash of 1929 Wal-Mart wampum Warburton, Peter Warren, George Washington consensus Weatherstone, Dennis Weimar inflation Weimar Republic Weinberg, Sidney West Germany whales’ teeth White, Harry Dexter William of Orange Wilson, Harold Wirtschaftswunder Wizard of Oz, The Wolf, Martin Women Empowering Women Woodward, Bob Woolley, Paul World Bank Wriston, Walter Xinhua agency Yale University yen yield on debt yield on shares Zambia zero interest rates Zimbabwe Zoellick, Robert Philip Coggan is the Buttonwood columnist of the Economist.

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

When applied to economics and banking, disaster myopia explains the psychological reasons why bankers are unable to incorporate the risk of asset prices falling into their lending decisions. An example of disaster myopia can be seen in Herring and Wachter’s (2002) model, in which real estate markets are prone to bubbles because the supply of real estate is fixed (in the short term) and difficult to short sell. As a result house prices rarely fall, and this leads to disaster myopia amongst bankers, who therefore lend more money than they otherwise would into the property market, pushing up prices in the process. Disaster myopia also occurs during a crash. The occurrence of a low frequency shock (such as a bubble bursting in the housing market) in the recent past leads decision makers to overestimate the probability of a similar shock occurring soon after.

…

Specifically, in May 1922 the Allies insisted on granting total private control over the Reichsbank. This private institution then allowed private banks to issue massive amounts of currency, until half the money in circulation was private bank money that the Reichsbank readily exchanged for Reichsmarks on demand. The private Reichsbank also enabled speculators to short-sell the currency, which was already under severe pressure due to the transfer problem of the reparations payments pointed out by Keynes (1929). It did so by granting lavish Reichsmark loans to speculators on demand, which they could exchange for foreign currency when forward sales of Reichsmarks matured.

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

Rather than simply rely on passive correlations that are out there in the world to ensure your safety, such as the inverse relationship that typically prevails between the USD and the euro, banks can adopt particular strategies, or trade derivative instruments with specific characteristics, so that the gains from one set of exposures covers (hedges) any losses in another.23 In principle then, a combination of portfolio diversification and hedging—if appropriately executed in a given market environment—will at the very least keep your investments safe. Think the market will go down? Short sell one asset (profit from a stock price falling by borrowing the stock for a fee, selling it, and then buying it back when its cheaper), and take a long position (buy and hold) in an uncorrelated asset as cover. Want to benefit from the market going up? Use options (the right to buy or sell an asset at a predetermined price) to increase leverage (amplify the bet) while taking a short position as cover.

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See risk-management techniques Portugal, 3, 4 bailout in, 71–73 Eurozone Current Account Imbalances, 78 fig. 3.1 Eurozone Ten-Year Government Bond Yields, 80 fig. 3.2 government debt 2006–2012, 47 fig. 2.3 slow growth crisis, 68–71 “Positive Theory of Fiscal Deficits and Government Debt in a Democracy, A” (Alesini), 167 Posner, Richard, 55 Prescott, Edward, 55, 157 President’s Conference on Unemployment, 120 Prices and Production (Hayek), 144 Principles of Political Economy (Mill), 116 Quiggin, John, 55 and Australian expectations-augmented austerity, 209 “zombie economics”, 10, 234 Rand, Ayn Atlas Shrugged, 130 rational expectations hypothesis, 42 Real Business Cycle school, 157 real estate “collateralized debt obligation”, 28 “tranching the security”, 28, 30–31 equity, 28 mezzanine, 28 senior, 28 “uncorrelated within their class”, 27–28 REBLL alliance, 103, 178–180, 179–180, 205, 216–226, 217 fig. 6.1 GDP and consumption growth in 2009, 221 table 6.1 See also names of countries recapitalization, 45, 52 Reinhardt, Carmen, 11, 73, 241 Ricardian equivalence, 41, 49 Ricardo, David, 115–117, 117–119, 171 in Germany, 195 risk-management techniques, 49 hedging, 32 long position, 32 options, 32 portfolio diversification, 31 short sell, 32 Ritschl, Albrecht, 193 Road to Serfdom, The (Hayek), 144 Robins, Lionel, 144 Robinson, Joan, 122, 126 Rodrik, Dani, 162, 163 Rogoff, Kenneth, 11, 73 Romania austerity in, 18, 103, 190, 216–226, 217 fig. 6.1, 221 Romney, Mitt, 243 Roosevelt, Franklin Delano, 126 administration policies, 128 balancing the budget, 188 Röpke, Wilhelm, 138 Rothbard, Murray, 148 Sachs, Jeffrey, 60 Saez, Emanuel, 243 Say’s law, 137 Sbrancia, M.

Evidence-Based Technical Analysis: Applying the Scientific Method and Statistical Inference to Trading Signals
by David Aronson
Published 1 Nov 2006

Unless investors were compensated for incurring trading costs there would be no point to their trading activities, which are required by EMH to move the price to its rational level. The bottom line is that any factor that limits trading—costs to trade, costs to generate information, the rule that impairs short-selling, and so forth—limits the ability of the market to attain efficiency. It simply does not hold logically that there would be no compensation to those engaged in trading. The Assumptions of EMH To appreciate the arguments made by EMH’s critics, it is necessary to understand that EMH rests on three progressively weaker assumptions: (1) investors are rational, (2) investors’ pricing errors are random, and 344 METHODOLOGICAL, PSYCHOLOGICAL, PHILOSOPHICAL, STATISTICAL FOUNDATIONS (3) there are always rational arbitrage investors to catch any pricing errors.

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As envisioned by efficient market advocates, an arbitrage trade goes something like this: Consider two financial assets, stocks X and Y, which sell at equal prices and which are equally risky. However, they have different expected future returns. Obviously, one of the two assets is improperly priced. If asset X has a higher future return, then to take advantage of the mispricing, arbitrageurs would buy asset X while short-selling Y. With the activities of like-minded arbitrageurs, the price of each stock will converge to its proper fundamental value.29 Market efficiency attained in this manner assumes there are always arbitrageurs ready, willing, and able to jump on these opportunities. The better ones become very wealthy, Theories of Nonrandom Price Motion 345 thereby enhancing their ability to drive prices to proper levels, while the irrational investors eventually go broke losing their ability to push prices away from equilibrium levels.

…

The population has a finite mean and a finite standard deviation. 37. The general principle that bigger samples are better applies to stationary processes. In the context of financial market time series, which are most likely not stationary, old data may be irrelevant, or even misleading. For example, indicators based on short selling volume by NYSE specialists seem to have suffered a decline in predictive power. Larger samples may not be better. 38. The Central Limit Theorem applies to a sample for which observations are drawn from the same parent population, which are independent, and in which the mean and standard deviation of the parent population are finite. 39.

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

Few senators, congressmen, and treasury officials, however happy to bluster on the fiscal ramparts attacking federal deficits, showed any parallel disturbance over private sector debt and fiscal legerdemain—at least not before August opened the private debt sector equivalent of Pandora’s box. Before long, scrutiny had exposed the largest array of financial abuses since congressional hearings on 1920s practices amplified the basis for an eventual barrage of New Deal statutes. Some of these had involved regulating securities markets, undocumented securities issuance, short selling, margin trading, and housing loans; others called for requiring federal deposit insurance and the divorce of commercial banking from the securities business; and still others specified prohibiting open-market operations by individual Federal Reserve banks, the operation of “pools” within exchanges, so-called bucket shops, the private ownership of gold, and more.

…

One pioneer, Professor Merton Miller, for years a board member of the Chicago Mercantile Exchange, enthused over derivatives as “essentially industrial raw materials” created to deal with uncertainty and volatility. He argued that “contrary to the widely held perceptions, derivatives have made the world a safer place, not a more dangerous one.”7 But professors frequently go overboard. In 1990, when U.S. economist William Sharpe, in accepting his Nobel Prize, insisted that unrestricted short selling was necessary for efficient markets, wags pointed out that it was restricted even in the United States.8 Over the years, a handful of critical academicians and several billionaire investors—Warren Buffett, George Soros, and William H. (Bill) Gross—would emerge as relentless critics of derivatives, bubbles, and alleged market efficiency.

The Global Money Markets
by Frank J. Fabozzi , Steven V. Mann and Moorad Choudhry
Published 14 Jul 2002

For example, on November 14, 2001, Bloomberg reports the on-the-run 5year Treasury note (3.5% coupon maturing November 15, 2006) was “on special” such that the overnight repo rate was 0.65%. At the time, the general collateral rate was 2.13%. There are several factors contributing to the demand for special collateral. They include: ■ government bond auctions—the bond to be issued is shorted by dealers in anticipation of new supply and due to client demand; ■ outright short selling whether a deliberate position taken based on a trader’s expectations or dealers shorting bonds to satisfy client demand; 7 Perhaps the issue is in great demand to satisfy borrowing needs. Repurchase and Reverse Repurchase Agreements 131 ■ hedging including corporate bonds underwriters who short the relevant maturity benchmark government bond that the corporate bond is priced against; ■ derivative trading such as basis trading creating a demand for a specific bond; ■ buy-back or cancellation of debt at short notice.

…

See also Forward rate agreements; Swaps usage, 232 day, 74 difference. See Quote/settlement frequency. See Fixed-rate payments payment, 214 price, 211 sum, 223 Settlement money, 120, 125, 137 326 Shelf registration. See Securities and Exchange Commission Shifting interest structure, 183 Short cash, 2 Short futures, 210 Short positions, 210, 225 covering, 133 Short selling, 130 Short-dated yield curve, 130 Short-duration portfolios, 161 Short-run liabilities, excess, 285 Short-term ABS, 5, 187 Short-term assets, 285 Short-term balloon loan, 153 Short-term borrowing, 153 Short-term debt, 66, 292 instruments, 4, 85 obligations, 46 Short-term discount instruments, 23 Short-term fixed-rate products, 101, 151 Short-term fluctuations, 292 Short-term funding requirement, 87–88 Short-term funds, 68.

Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street
by Sheelah Kolhatkar
Published 7 Feb 2017

Cantwell wanted Bowe to explain every aspect of Fairfax’s 160-page complaint. Bowe spent the next three hours describing the charges and the evidence behind them, telling them about SAC and the other hedge funds Fairfax believed were targeting them, the false rumors and prank phone calls, the short selling and the allegations of insider trading. While he spoke, Kang took notes. The atmosphere was chilly, but Cantwell said that they would look into Fairfax’s claims against the hedge funds. She thanked him and said goodbye. — Michael Bowe was not raised to avoid conflict. In some ways he sought it out.

…

As the keynote presenter at the conference, Gilman would be one of the first people to have access to the full, unblinded bapi test results. Elan and Wyeth worked to ensure that there wouldn’t be any leaks. While Gilman was getting ready to present the drug trial results to the rest of the world, the stock market continued to crash. On July 15, the SEC issued an emergency ban on short selling of financial stocks in an attempt to calm the market, a desperate measure that only served to scare investors even more. Watching SAC’s portfolios lose money every day was an unusual experience for Cohen, and one he did not enjoy. He had lost all confidence that the situation could be brought under control through government intervention or anything else.

Prosperity Without Growth: Foundations for the Economy of Tomorrow
by Tim Jackson
Published 8 Dec 2016

The mainstream response had more the character of an addict reaching for the bottle to cure a hangover from the night before. Anything, to get growth back again, as fast as possible, no matter what the cost. Some concessions to a more responsible financial sector were initiated. Practices like short-selling were suspended; increased capital adequacy requirements were called for; there was, briefly, a grudging acceptance of the need to cap executive remuneration (bonuses) in the financial sector.33 Admittedly, this last concession was born more of political necessity in the face of huge public outcry over the bonus culture than through recognition of a point of principle.

…

As early as December 2008, Goldman Sachs paid out $2.6 billion in end-of-year bonuses in spite of its $6-billion-dollar bailout by the US government, justifying these on the basis that they helped to ‘attract and motivate’ the best people.34 Many such responses were seen as short-term interventions, designed to facilitate the restoration of business as usual. Short-selling was suspended for six months, rather than banned. Capital adequacy requirements were relatively modest and only to be phased in slowly. The part-nationalisation of financial institutions was justified on the basis that shares would be sold back to the private sector as soon as reasonably possible, something that in many cases still hasn’t been achieved.35 Extraordinary though some of these interventions were, they were largely regarded as temporary measures.

Brazillionaires: The Godfathers of Modern Brazil
by Alex Cuadros
Published 1 Jun 2016

Pactual underwrote all of Eike’s stock offerings since MMX in 2006. (And later, when crisis struck, it would engulf Esteves too.) Eike and Esteves hadn’t always gotten along. Eike once called up Esteves to yell at him when one of his analysts wrote a negative report on OGX. More recently, Eike believed that Esteves’s traders had been short-selling OGX’s shares. But he was desperate, and the investing class loved Esteves. The first thing Esteves did was to announce a billion-dollar credit line for EBX, a sign of his confidence in Eike’s empire. The markets reacted as hoped. OGX’s stock price jumped sixteen percent in a single day. Reportedly, Eike went around the office saying, in English, “The magic Eike is back!”

…

Details on his life are from press reports and reporting for Alex Cuadros and Cristiane Lucchesi, “BTG’s Esteves Drives ‘Better Than Goldman’ Rise in Bank’s Clout,” Bloomberg Markets, September 10, 2012. 219“would sell his own mother to gain power.” From Consuelo Dieguez, “De elefante a formiga,” Piauí, November 2006. 220Eike believed that Esteves’s traders had been short-selling. From Gaspar, Tudo ou Nada, 395. 220“The magic Eike is back!” From Lauro Jardim, “Auto-confiança máxima,” Veja, March 10, 2013. CHAPTER 9: THE BACKLASH 221Esteves had just given an interview. David Friedlander, Raquel Landim, and Ricardo Grinbaum, “‘É natural que a participação do Eike nas empresas caia de 60% para 30%,’” O Estado de S.

A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers
by Lawrence G. Mcdonald and Patrick Robinson
Published 21 Jul 2009

We suddenly had a commando squad of MIT- and Harvard-educated multimillionaires preparing to go into combat against $120,000-a-year civil service regulators. It never did seem like an even match to me. What Wall Street’s financial maestros came up with while the SEC guys were consumed with backdated options, insider trading, and naked short-selling was something brand-new—a fee-generating machine hereinafter referred to as the dreaded credit derivatives, also known as securitization. They invented a method of turning a thousand mortgages into a bond with an attractive coupon of 7 or 8 percent. This high-yield bond could be traded, and hence turned into a profit generator; it would enable the mortgage brokers, investment banks, and bondholders to reap a very nice annual reward—just so long as the homeowners kept right on paying on time every month, and the U.S. housing market held up the way it always had.

…

Whatever the hell else happened in this great financial man-o’-war, where no one could see the hand that held the tiller, I was among the safest possible company. I thought back to my dad’s old alma mater, Notre Dame, and the legend of the most famous college folklore in the world. I even made my own rewrite: Outlined against sunny New York autumn skies, the Four Horsemen rode again. In financial lore, their names were Debt, Bankruptcy, Short Selling, and Fraud. Their real names were Kirk, Gelband, Gatward, and McCarthy. The backup battalions, which surrounded them every step of the way, were no less accomplished. Especially Christine Daley, for it was she who administered my first serious test of character and knowledge in the first week of my employment at Lehman.

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

The Bank of England has been the most dramatic flip-flopper in terms of how to approach the process, whereas the Fed and ECB have been more consistent, each with different results and different aims. This mismatch creates opportunity for an alpha-seeking macro fund. Broadening the discussion to government policy makers, things such as TARP getting voted down and then voted for, or the banning of short selling, or allowing Lehman to go bust and then bailing out AIG a few days later—these things seemed pretty random. They were far from random—many were quite predictable. But this is not the same as saying they were easy. It was clear the week before it happened that Lehman would be let go. Our fund had battened down the hatches the week before, so we did not have a single deal open with Lehman.

…

See Risk premia payment Price/earnings (P/E) multiples, exchange rate valuation (relationship) Primary Dealer Credit Facility, placement Prime broker risk Princeton University (endowment) Private equity cash flow production tax shield/operational efficiency arguments Private sector debt, presence Private-to-public sector risk Probability, Bayesian interpretation Professor, The bubble predication capital loss, avoidance capital management cataclysms, analysis crowding factor process diversification efficient markets, disbelief fiat money, cessation global macro fund manager hedge fund space historical events, examination idea generation inflation/deflation debate interview investment process lessons LIBOR futures ownership liquidity conditions, change importance market entry money management, quality opportunities personal background, importance portfolio construction management positioning process real macro success, personality traits/characteristics (usage) returns, generation risk aversion rules risk management process setback stocks, purchase stop losses time horizon Titanic scenario threshold trades attractiveness, measurement process expression, options (usage) personal capital, usage quality unlevered portfolio Property/asset boom Prop shop trading, preference Prop trader, hedge fund manager (contrast) Protectionism danger hedge process Public college football coach salary, public pension manager salary (contrast) Public debt, problems Public pensions average wages to returns endowments impact Q ratio (Tobin) Qualitative screening, importance Quantitative easing (QE) impact usage Quantitative filtering Random walk, investment Real annual return Real assets Commodity Hedger perspective equity-like exposure Real estate, spread trade Real interest rates, increase (1931) Real macro involvement success, personality traits/characteristics (usage) Real money beta-plus domination denotation evolution flaws hedge funds, differentiation impacts, protection importance investors commodity exposure diversification, impact macro principles management, change weaknesses Real money accounts importance long-only investment focus losses (2008) Real money funds Commodity Hedger operation Equity Trader management flexibility frontier, efficiency illiquid asset avoidance importance leverage example usage management managerial reserve optimal portfolio construction failure portfolio management problems size Real money managers Commodity Investor scenario liquidity, importance long-term investor misguidance poor performance, usage (excuse) portfolio construction valuation approach, usage Real money portfolios downside volatility, mitigation leverage, amount management flaws Rear view mirror investment process Redemptions absence problems Reflexivity Rehypothecation Reichsmarks, foreign holders (1922-1923) Relative performance, inadequacy Reminiscences of a Stock Operator (Lefèvre) Renminbi (2005-2009) Repossession property levels Republic of Turkey examination investment rates+equities (1999-2000) Reserve currency, question Resource nationalism Returns forecast generation maximization momentum models targets, replacement Return-to-worst-drawdown, ratios (improvement) Reward-to-variability ratio Riksbank (Sweden) Risk amount, decision aversion rules capital, reduction collars function positive convexity framework, transition function global macro manager approach increase, leverage (usage) measurement techniques, importance parameters Pensioner management pricing reduction system, necessity Risk-adjusted return targets, usage Risk assets, decrease Risk-free arbitrage opportunities Risk management Commodity Hedger process example game importance learning lessons portfolio level process P&L, impact tactic techniques, importance Risk premia annualization earning level, decrease specification Risk/reward trades Risk-versus-return, Pensioner approach Risk-versus-reward characteristics opportunities Roll yield R-squared (correlation) Russia crisis Russia Index (RTSI$) (1995-2002) Russia problems Savings ratio, increase Scholes, Myron Sector risk, limits Securities, legal lists Self-reinforcing cycles (Soros) Sentiment prediction swings Seven Sisters Sharpe ratio increase return/risk Short-dated assets Short selling, ban Siegel’s Paradox example Single point volatility 60-40 equity-bond policy portfolio 60-40 model 60-40 portfolio standardization Smither, Andrew Socialism, Equity Trader concern Society, functioning public funds, impact real money funds, impact Softbank (2006) Soros, George self-reinforcing cycles success Sovereign wealth fund Equity Trader operation operation Soybeans (1970-2009) Special drawing rights (SDR) Spot price, forward price (contrast) Spot shortages/outages, impact Standard deviation (volatility) Standard & Poor’s 500 (S&P500) (2009) decrease Index (1986-1995) Index (2000-2009) Index (2008) shorting U.S. government bonds, performance (contrast) Standard & Poor’s (S&P) shorts, coverage Stanford University (endowment) State pension fund Equity Trader operation operation Stochastic volatility Stock index total returns (1974-2009) Stock market increase, Predator nervousness Stocks hedge funds, contrast holders, understanding pickers, equity index futures usage shorting/ownership, contrast Stops, setting Stress tests, conducting Subprime Index (2007-2009) Sunnies, bidding Super Major Survivorship bias Sweden AP pension funds government bond market Swensen, David equity-centric portfolio Swiss National Bank (SNB) independence Systemic banking crisis Tactical asset allocation function models, usage Tactical expertise Tail hedging, impact Tail risk Take-private LBO Taleb, Nassim Tax cut sunset provisions Taxes, hedge Ten-year U.S. government bonds (2008-2009) Theta, limits Thundering Herd (Merrill Lynch) Time horizons decrease defining determination shortening Titanic funnel, usage Titanic loss number Titanic scenario threshold Topix Index (1969-2000) Top-line inflation Total credit market, GDP percentage Total dependency ratio Trade ideas experience/awareness, impact generation process importance origination Traders ability Bond Trader hiring characteristics success, personality characteristics Trades attractiveness, measurement process hurdle money makers, percentage one-year time horizon selection, Commodity Super Cycle (impact) time horizon, defining Trading decisions, policy makers (impact) floor knowledge noise level ideas, origination Tragedy of the commons Transparency International, Corruption Perceptions Index Treasury Inflation-Protected Securities (TIPS) trade Triangulated conviction Troubled Asset Relief Program (TARP) Turkey economy inflation/equities (1990-2009) investment rates+equities (1999-2000) stock market index (ISE 100) Unconventional Success (Swensen) Underperformance, impact Undervaluation zones, examination United Kingdom (UK), two-year UK swap rates (2008) United States bonds pricing debt (1991-2008) debt (2000-2008) home prices (2000-2009) hyperinflation listed equities, asset investment long bonds, market pricing savings, increase stocks tax policy (1922-1936) trade deficit, narrowing yield curves (2004-2006) University endowments losses impact unlevered portfolio U.S.

The Trade Lifecycle: Behind the Scenes of the Trading Process (The Wiley Finance Series)
by Robert P. Baker
Published 4 Oct 2015

They may insist that the trading desk posts a reserve into an account to be held for losses on leveraged trades; they may allow some degree of leverage, but under limits; or they may enforce a hedging strategy as can be seen in the example in Table 5.3. TABLE 5.3 Leverage Product/Term 0–1 month 1–3 months 3–12 months 1 year–5 years Short call options Short put options Short sell Writing credit 2× 1/2× 1× 1/50 4× 1/4× 3× 1/25 8× 1/8× 5× 1/10 15× Maximum loss 10× 1/5 Explanatory notes: For options and selling short we assume spot prices will change more over a greater period of time. 2× indicates the loss is double the change in spot price 8× when the loss is eight times etc.

…

Bob Steiner (2012) Mastering Financial Calculations: A Step-by-step Guide to the Mathematics of Financial Market Instruments, Financial Times/Prentice Hall. 377 Index 30/360 date calculation 350–1 ABSs see asset backed securities abusive behaviour, traders 223 acceptance testing see user acceptance testing accounting 161–9 balance sheet 161–4 financial reports 168–9 profit and loss account 164–8 accrual accrual convention 349–50 accrued profit and loss 165 actual/actual date calculation 350 advisory services 269, 370 aggregation of calculations 342 trades 101–2 agricultural commodities 56 algorithms 184 amendment to a trade 108 American options 29, 66 amortising bonds 47, 48 analytics 271–2 see also quantitative analysts animal products 56 application programming interface (API) 270 architects, IT 187 asset backed securities (ABSs) 47 asset classes 33–59 bonds and credit 46–53 commodities 29, 53–8 equities 44–5 foreign exchange 40–4 interest rates 33–40 and products 17 trade matrix 71–2 trading across 58–9 asset holdings see holdings asset managers 10, 168–9 at-the-money options 66 audit 191–2 average trades, exotic options 68 back book trading 132 back office (operations) 183, 227, 316 back testing 317 back-to-back trades 152 bad data 105, 317–20 balance sheet 161–4 banks culture and conduct 203 interbank systems 158 reasons for trading 9–10 retail banks 222 traders’ internal accounts 123 Barclays Capital 219 barrier options 68 base rate, interest rates 35 Basel II 144 Basel III 205 baskets exotic options 68 FX trades 41–2 BCP see business continuity planning bearer securities 124 Bermudan options 66 bespoke trades 69–70 bid/offer spread 310 binary options 68–9 black box (mathematical library) 238, 241, 270 black box testing 301 Black Scholes formula 346 board of directors 193–4 bond basis deltas 175 379 380 bonds 27, 28, 29, 46–53 coupon payments 47, 48, 106–7 RABOND project case study 225–35 sovereign debt 46 tradeflow issues 49 types 46–7 bonuses 220–1 booking of a trade 85, 93–4 bootstrapping 348–9 boundary testing 351 breaches, dealing with 155–6 breaks, settlement 356–7 brokers 5–6, 10, 75 buckets (time intervals) 148–9 bullying behaviour 223 business continuity planning (BCP) 373 calculation process 337–52 see also valuation process bootstrapping 348–9 calibration to market 351 dates 349–51 example 337–8 mark-to-market value 339–40 model integration 352 net present value 338–9, 343–8 risks 352 sensitivity analysis 347–8 calibration process, valuation 351 call options 62, 63 cancellation of a trade 109 capital adequacy ratio (CAR) 144 case studies 225–52 EcoRisk project 235–47 OTTC equity confirmation project 247–52 RABOND project 225–35 cash balance sheet item 162 exchange dates 86 exercise 111 settlement 98, 99 cashflows American options 30 asset holdings 117–24 bank within a bank 123 consolidated reporting 122 custody of securities 123–4 diversification 122–3 realised and unrealised P&L 122 INDEX reconciliation 121 risks 124 treatment of 119–20 value of 120–1 credit default swaps 31 deposits 23 discount curve 38–9 equity spot trades 26 fixed bonds 27, 28 floating bonds 27, 28 foreign exchange swaps 25 future trades 20–1 loans 22 options 27–30, 345–6 post booking 96–7 risks 367 spot trades 19 swap trades 24 unknown, options valuation 345–6 zero bonds 27, 29 CDSs see credit default swaps Central Counterparty Clearing (CCP) 210–12 change coping with 260–1, 284 to a trade 105–10 clearing 210–12 Cliquet (ratchet options) 68 collateral 108, 153–4, 156, 212–13 COM (common object model) 246 commodities 29, 53–8 cash settlement 99 characteristics 55–6 currency 57 definition 55 example 53–5 localised production 57 OTC commodities 56 physical settlement 57–8 profit curve 54–5 time lag 57 tradeflow issues 58 types 56 utility of 57 common object model (COM) 246 communication 188, 197–8, 254–5, 259–60, 305, 371 competition analysis 269 compliance officers 192–3 confirmation of a trade 94–6, 247–52, 355 conflicts and tensions 196–7, 198–9, 360–1 381 Index consolidated reporting 122 consolidation of processes 283–4 control see also counterparty risk control; market risk control people involved in 189–99, 224 of report generation 335 conversion, currency 344 correlation risk 131, 363 counterparties changes to a trade 108 correlation between 364 identification of 85 Counterparty Clearing, Central 210–12 counterparty risk control 147–60, 364–5 activities of department 154–7, 190–1 collateral 153–4, 156 counterparty identification 153 default consequences 148 limit imposition 152–3 management interface 157 measurement of risk 149–52, 155, 156 non-fulfilment of obligations 147–8 payment systems 158–60 quantitative analyst role 268 risks in analysing credit risk 157–8 settlement 356 time intervals 148–9 coupon payments, bonds 47, 48, 106–7 credit default swaps (CDSs) 30–1, 51–2, 65–6, 175, 209 credit exposure 150–1 credit quantitative analysts 274 credit rating companies 231–2 credit risk see also counterparty risk control; credit default swaps; credit valuation adjustment bonds 46–53 default 51 definition 50 documentation 50–1 market data 316 measurement of 209 recovery rate 52–3 risks in analysing 157–8 types of risk 131 credit valuation adjustment (CVA) 207–13 debt valuation adjustment 209 definition 208 funding valuation adjustment 209 measurement of 208 mitigation 210 netting 211–12 portfolio-based 213 rehypothication 212–13 credit worthiness 51–2, 155 creditors, balance sheet item 163 CreditWatch 232 culture of banks 203 currency conversion 344 exposure to 4 precious metals as 57 reporting currency 42 value of holdings 120–1 currency swaps, foreign exchange 41 current (live) market data 79, 314 curves, market data 310–13 custodians 98, 124 customer loyalty 199 CVA see credit valuation adjustment data 307–25 absence of 368 authentic data 368 back testing 317 bad data 105, 317–20 bid/offer spread 310 corrections to 321–2 data feeds 226 expectations 309–10 extreme values 317 implied data 323 integrity of 322–4 internal data 321 interpolation 319 market data 107–8, 180, 292, 308–17 processes 286 risks 324–5, 367–8 sources of 320–1, 323 storage 309 testing 302 time series analysis 320 types of 308–10 validity of 307 vendors 321 data cleaning 320 data discovery 319–20 data engineering 319 databases 250–1, 308 382 dates calculation of 349–51 exercise of trades 111 final settlement 113 internal and external trades 102 relating to a trade 86–7 settlement 101, 113 on trade tickets 102 debt, exposure to 127 debt valuation adjustment (DVA) 209 debtors, balance sheet item 162 default 51, 131, 148 see also credit default swaps delivery versus payment (DvP) 98 delta hedging 133 delta risk 130 deltas 175 deposits 23, 35 derivatives 61–72 see also futures and forwards; options; swaps digital options 68–9 directors, role of 193–4 discount curve, interest rates 38–9 discounting, NPV calculation 343–4, 345 diversification 122–3 dividends 105–6 documentation credit risk 50–1 EcoRisk project case study 240–1 legal documents 84–5 processes 287 risks 356, 374 settlement 98 Dodd–Frank Act 206–7 dreaming ahead 131–2 due diligence 192, 292 duties (fees) 97 DVA (debt valuation adjustment) 209 DVO1, risk measure 138 DvP (delivery versus payment) 98 economic data 84 EcoRisk project, case study 235–47 documentation 240–1 functionality 243–4 Graphical User Interface 237–8 mathematical library 238, 241 solution 238–40 testing 239–40 valuation problem debugging 242–3 INDEX electronic exchanges 6 electronic systems 92 email 92 EMIR (European Markets Infrastructure Regulation) 202–3 employees see people involved in trade lifecycle end of day roll 103, 181–2 end of month reports 182 energy products 56 equal opportunities 219–20 equities 26, 44–5, 247–52 errors confirmation process 95 in data 322 P&L corrections 171 post booking 97 in reports 333–4 European Markets Infrastructure Regulation (EMIR) 202–3 European options 29, 66 exceptions, processes 322 exchange price 75 exchanges 6, 86, 320 execution of a trade 89–93 exercise, option trades 64, 110–12, 357–8 exotic options 67–9, 109, 235–47, 346 expected loss 150 exposure 4, 125–8, 130–2, 150–1, 155, 156 fault logging 302–4 fees 97, 169 finance department 191, 316 financial products 17–31 bonds 27, 28, 29, 46–53, 106–7, 225–35 credit default swaps 30–1, 51–2, 65–6, 175, 209 deposits 23, 35 equities 26, 44–5, 247–52 futures 20–1, 35–6, 40–1, 61, 62, 77, 127, 311, 312 FX swaps 25, 41 loans 21–3 options 27–30, 61–9, 77, 109–12, 127, 235–47, 345–6, 357–8 spot trades 18–19, 40, 127 swaps 23–5, 30–1, 36–7, 41, 107, 312–13 financial reports 168–9 financial services industry 8–10 fixed assets, balance sheet item 161 fixed bonds 27, 28, 47, 48 fixed and floating coupons 127 383 Index fixed for floating swaps 23–4 fixed loans 22 fixing date 86 fixings 107–8 float for fixed/float for float 36 floating bonds 27, 28 floating loans 22 floating rate notes (FRNs) 47 flow diagrams 287 FoP (free of payment) 98 foreign exchange (FX) 40–4 baskets 41–2 FX drift 42–3 reporting currency 42 swaps 25, 41 tradeflow issues 43–4 forward rate agreement (FRA) 37–8 see also futures and forwards free of payment (FoP) 98 FRNs (floating rate notes) 47 front book trading 132 front line support staff 186 front office EcoRisk project, case 235–47 market risk control 142 risks 375–6 fugit 112 fund managers 10 funding valuation adjustment (FVA) 209 futures and forwards 20–1, 35–6, 40–1, 61, 62 gold futures 311, 312 leverage 77 risks 127 FVA (funding valuation adjustment) 209 FX see foreign exchange gamma risk 130 gearing 77–8 gold futures 311, 312 governance 204 Graphical User Interface (GUI) 237–8 hedge funds 10, 168–9, 212–13 hedging strategies 133–4 hedging trades 128 help desks 247 historical market data 314 holdings 117–24 asset types 118 bank within a bank 123 consolidated reporting 122 custody of securities 123–4 diversification 122–3 realised and unrealised P&L 122 reconciliation 121 risks 124 value 120–1 human resources see people involved in trade lifecycle human risks 194–9, 359–61 hybrid trades 69–70 identification details, trades 83–4 illiquid products 140 illiquid trades 339 in person trades 92 in-the-money options 66 incentives 195 industrial metals 56 information technology (IT) architects 187 case studies 225–52 communication 259–60 dependency on 284 EcoRisk project 235–47 equity confirmation project 247–52 infrastructure 186 IT divide 253–66 business functions 255–6 business requirements 261–3 coping with change 260–1 do’s and don’ts 263 IT blockers 258 IT requirements 263–4 misuse of IT 256–7 organisational blockers 257–8 problems caused by 255 project examples 265–6 solution 259–60 language of 254 legacy systems 282 operators 188 project managers 187–8 quality control 260 and quantitative analysts 271–4 RABOND project 225–35 risks 375–6 staff 185–9, 197, 217–18, 253–66 testers 188–9 and traders 258 384 infrastructure, IT 186 instantaneous risk measures 138 insurance 30–1, 50 integration testing 300 interbank systems 158 interbank trading (LIBOR) 39 interest rates 21–3, 33–40 base rate 35 credit effects 39 deltas 175 deposits 35 discount curve 38–9 forward rate agreement 37–8 futures 35–6, 311–12 market participants 34–5 option valuation 67 products 35–8 quantitative analysts 274 swaps 23–5, 36–7 time value of money 33–4 tradeflow issues 39–40 vegas 175 interim delivery of projects 259 internal audit 191–2 International Swaps and Derivatives Association (ISDA) 50 investment banks 9–10 investments, balance sheet item 161 ISDA (International Swaps and Derivatives Association) 50 IT see information technology kappa risk 130 knock in/knock out, barrier options 68 knowledge, risks 359–60 legacy IT systems 282 legal department 189, 293, 316 legal documents 84–5 legal risks 50, 369 leverage 64–6, 76–9 LIBOR (interbank trading) 39 libraries 184–5 lifecycle of a trade see trade lifecycle limit orders 129 limits and credit worthiness 155 imposing 152–3 market risk control 141 line managers 222 INDEX linear derivatives 61, 62 liquidity 73–5, 202, 375 litigation 370 live trading 7 loans 21–3 management see also project management; risk management of changes 109–10 counterparty risk control 157 fees 169 market data usage 317 new products 292 responsibilities of 193–4 risks 374 of teams 229–31 margin payments 156 mark-to-market value 339–40 market data 180, 292, 308–17 business usage 315–17 changes as result of 107–8 curves and surfaces 310–13 sets of 314 market participants 4–5 market risk control 135–45, 190, 363–4 allocation of risk 139 balanced approach 143 controlling the risk 140–1 human factor 143 limitations 142–3 market data usage 316 methodologies 135–9 monitoring of market risk 140 need for risk 139 quantitative analyst role 268 regulatory requirements 143–4 responsibilities 141–2 market sentiment 340 matching of records 94–5 mathematical libraries 238, 241, 270 mathematical models evolution of 343 new products 293 parameters 341 prototypes 238–9 quantitative analyst role 183–5 risks 373 validation team 189–90 maturity of a trade 8, 67, 86, 112–13 MBS see mortgage backed securities 385 Index metal commodities 56, 57 middle office (product control) market data usage 316 new products 293 RABOND project, case study 225–35 role of 180–2 missing data 317 mobile phones 92 models see mathematical models Monte Carlo technique 346–7 mortgage backed securities (MBS) 47 multilateral netting 211–12 NatWest Markets, EcoRisk project 235–47 net present value (NPV) 338–9, 343–8 netting 152, 211–12 new products 289–95 checklist 292–3 evolution of 294 market data 292 market risk control 140 process development/improvement 279–88 risks 194, 294–5, 369 testing 291–2 trial basis for 290–2 new trade types 156 nonlinear derivatives 62–9 nostro accounts 99 NPV see net present value official market data 314 offsetting of risks 128 OIS (overnight indexed swap) 39 operational risks 355–8 operations department 183, 227, 316 operators, IT 188 options 27–30, 61–9 credit default swaps 65–6 exercise 110–12 exotic options 67–9, 109, 235–47, 346 leverage 64–6, 77 risks 127, 357–8 terminology 66 trade process 64–6 valuation 67, 345–6 orders 90–1, 357 OTC see over-the-counter trading OTTC equity confirmation project, case study 247–52 out-of-the-money options 66 over-the-counter (OTC) trading 6–7 clearing 210 commodities 56 price 75 overnight indexed swap (OIS) 39 overnight processes 101–5 P&L see profit and loss parallel testing 301 pay 203, 220–1 payment systems 106–7, 158–60, 357 pension funds 10 people involved in trade lifecycle 177–200 see also working in capital markets back office 183, 227, 316 compliance officers 192–3 conflicts and tensions 196–9, 360–1 control functions 189–99 counterparty risk control department 190–1 finance department 191, 316 human risks 194–9 information technology 185–9, 197, 217–18, 253–66 internal audit 191–2 legal department 189, 293, 316 line managers 222 management 193–4 market risk control department 190 middle office 180–2, 225–35, 293, 316 model validation team 189–90 personality and outlook 194–5, 244–5, 273 programmers 187, 244–5 quantitative analysts 183–5, 267–75 researchers 179–80 revenue generation 177–89 sales department 179, 227, 315, 375 senior managers 126 staffing levels 195 structurers 179 supervisors 204 testers 298–9 traders 125–6, 177–8, 218–23, 226–7, 258, 268, 315, 361 trading assistants 178 trading managers 126, 193 training of staff 193 performance reports 169 personality and outlook 194–5, 244–5, 273 PFE (potential future exposure) 151 physical assets, exercise 111 386 physical commodities, settlement 57–8, 99 planning of processes 282–3 recovery plans 203–4 risks 360 post booking processes 96–7 postal trades 92–3 potential future exposure (PFE) 151 power, abuses of 220, 221–2 pre-execution of a trade 89–91 precious metals 56, 311, 312 premiums 31 price 75–6, 138–9 pricing methods EcoRisk project, case study 235–47 short-term pricing 183 process development/improvement 279–88 coping with change 284 current processes 285–7 evolution of processes 280–1 improving the situation 284–7 inertia 287–8 inventory of current systems 282–4 planning 282–3 timing 288 producers 5 product appetite 4 product control see middle office product development see new products profit curve, commodity trading 54–5 profit and loss (P&L) accounts 164–8 accrued and incidental 165 example 165–6 individual trades 166–7 realised and unrealised 165 responsibility for producing 167 risks associated with reporting 167–8 rogue trading 168 attribution reports 171–6 benefits of 171–2 example 173–6 market movements 173, 175 process 172–3 unexplained differences 173 balance sheet item 163 end of day 182 realised and unrealised 122, 165 programmers 187, 244–5 see also quantitative analysts INDEX project management 225–47, 259, 262 project managers 187–8 proprietary (‘prop’) trading 203 prototypes, IT projects 238–9 provisional trades 89–90, 357–8 put options 62, 63 PVO1, risk measure 138 quality control, IT 260 see also testing quantitative analysts (quants) 183–5, 267–75 and IT professionals 271–4 role of 267–9, 270 seating arrangements 270–1 working methods 269–70 RABOND project, case study 225–35 management 229–31 outcome 233–5 reports 227–9 team management 229–31 traders 226–7 random market data 314 rapid application development (RAD) 260, 281 ratchet options (Cliquet) 68 ratings companies 231–2 raw data 323 raw reporting 331 real world of capital markets see working in capital markets realised P&L 122 receipts 156 reconciliation 121 recovery plans 203–4 recovery rates 52–3, 176 redundancy, processes 282 reform of banks 203 registered securities 123–4 regression testing 302 regulation 201–13, 223–4 authorities 202 Basel II and III 144, 205 credit valuation adjustment 207–13 external 192 internal 224 market risk control 143–4 new products 293 problems 204–5 requirements 202–4 387 Index risk-weighted assets 205–7 risks 369 rehypothication 212–13 remuneration 203, 220–1 reporting currency 42 reports 327–36 accuracy 330–1, 368 calculation process 342 configuration 331–2 consolidated reporting 122 content 328–9 control issues 335 dimensions 333 distribution 329–30, 335, 369 dynamic reports 332–3 end of month reports 182 enhancements 335 errors in 333–4 false reporting 375 financial reports 168–9 frame of reference 333 middle office role 180–1 OTTC equity confirmation project 250, 251 performance reports 169 presentation 329 problems 333–4 profit and loss 167, 171–6 RABOND project 227–9 raw reporting 331 readership 328, 329, 368–9 redundancy of 334–5 requirements 328–33 risks 335–6, 368–70 security issues 335, 368 timing 330 types of 330 reputation, risk to 356, 370 research 268, 375 researchers 179–80 reserve accounts 141 reset date 86 resettable strike, exotic options 68 retail banks 222 revenue generation, people involved in 177–89 rho risk 130 risk 13–16 see also counterparty risk control; market risk control advisory services 370 appetite for 4 business continuity planning 373 calculation process 352 cashflows 124, 367 changes to a trade 110 communication 371 confirmation 95–6, 355 control departments 224 correlation 363 data 324–5, 367–8 definition 13 documentation 356, 374 exercise 112 front office 375–6 human risks 194–9, 359–61 information technology 375–6 instantaneous measures 138 legal risks 369 liquidity 74–5, 375 litigation 370 management risks 374 measures 130, 138, 149–52, 155, 156 model approval 373 new products 140, 194, 294–5, 369 operational risks 355–8 orders 91 origin of risks 126–8 payment systems 357 provisional trades 90, 357–8 quantifying 14 regulation 369 reports 335–6, 368–70 reputation 356, 370 risk-weighted assets 205–7 sales 375 settlement 100, 355–7 short-term thinking 360 straight through processing 357 support activities 376 systematic 202–3, 375–6 testing 304–5, 370–1 types 130–2 unexpected charges 356 unforeseen 16, 353 valuation process 352, 373 risk management 13, 15, 125–34 in absence of trader 128–9 dreaming ahead 131–2 EcoRisk project case study 235–47 hedging strategies 133–4 hedging trades 128 388 risk management (continued) offsetting of risks 128 senior managers 126 traders 125–6, 361 trading managers 126 trading strategies 132 rogue trading 168 sales data 84 sales department 179, 227, 315, 375 SBC Warburg, equity confirmation project, case study 247–52 scenario analysis 136, 198–9, 341 scope creep 187, 264 scrutiny of trades 96 securities, custody of 123–4 security issues 181, 335, 368 semi-static data 309 senior managers 126 sensitivity analysis 138, 347–8 settlement 97–101, 147–8 breaks 101, 356–7 commodities 99 dates 101, 113 nostro accounts 99 quick settlement 101 risks 100, 355–7 shares 44–5 see also equities short selling 65 short-term pricing 183 short-term thinking 195–6, 360 silo approach 257 simple products 70–1 smoke testing 301 sovereign debt 46 speculators 5 spot prices 61, 62, 63, 67, 76–7 spot testing 301 spot trades 18–19, 40, 127 spread of bid/offer 310 spreadsheets 184, 238 staff see people involved in trade lifecycle stale data 105, 318 Standard & Poor’s (S&P) ratings 231–2 static data 309 stop-loss hedging 133–4 stop orders 129 storage of data 309 straight through processing (STP) 93–4, 357 INDEX stress, staff 222, 244–5 stress testing 302 strike price, options 67 structured trades 69–70 structurers 179 supervisors 204 support activities, risks 376 surfaces, market data 310–13 swaps credit default 30–1, 51–2, 65–6, 175, 209 fixings 107 foreign exchange 25, 41 interest rate 23–5, 36–7 yield curves 312–13 swaptions 66 synthetic equities (index) 45 systems see also information technology amalgamation 104–5 analytics 271–2 electronic systems 92 integrated 261 legacy IT systems 282 risks 375–6 testing 251–2, 300 tail behaviour, predicting 143, 364 team management 229–31 telephone transactions 91–2 tensions and conflicts 196–9, 360–1 testing 297–305 back testing 317 boundary testing 351 extreme values 352 fault logging 302–4 importance of 298 mathematical models 239 new products 291–2 risks 304–5, 370–1 stages 300–1 testers 188–9, 298–9 types of 301–2 unit testing 300 user acceptance testing 237, 239–40, 252, 264, 301 when to perform 299–300 theft 355 theta risk 130 time intervals (buckets) 148–9 time lag, commodities 57 389 Index time series analysis 320 timeline of a trade 79, 86–7 trade blotters 93 trade lifecycle 89–115 booking 93–4 business functions 11 changes during lifetime 105–10 confirmation 94–6 equity trades 45 example trade 113–15 execution 91–3 exercise 110–12 maturity 112–13 new products 293 overnight processes 101–5 post booking 96–7 pre execution 89–91 settlement 97–101 trade tickets 102 trade/trading 3–12 see also trade lifecycle anatomy 83–7 business functions 11 complicated trades 340 consequences of 7–8 definition 10–12 financial products 17–31 live trading 7 matching of records 94–5 policies 8 reasons for 3, 9–10 timeline 79, 86–7 transactions 5–7 types 132 tradeflow issues bonds 49 commodities 58 foreign exchange 43–4 interest rates 39–40 traders 177–8, 218–22, 223, 226–7, 258, 268 bonuses 220–1 market data usage 315 risk management 125–6, 361 trading assistants 178 trading desks 70–1, 256–7 trading floor 217–18, 235–6 trading managers 126, 193 training of staff 193 tranche correlation 131 treasury desk 71 trials for new products 290–2 trust 197, 222 UAT see user acceptance testing underlying 83 unexplained differences, P&L reports 173 unforeseen risk 16, 353 unit testing 300 unknown cashflows 345–6 unrealised P&L 122 unwinding a trade, cost of 76 user acceptance testing (UAT) 237, 239–40, 252, 264, 301 validation of models 189–90 valuation process see also calculation process calibration to market 351 mark-to-market value calculation 339–40 middle office role 181 NPV calculation 338–9, 343–8 options 67 problem debugging 242–3 risks 352, 364, 373 valuation systems 269 value at risk (VaR) 136–8, 341 vega (kappa) risk 130 vegas 175 vendors, data services 321 volatility 67, 130 volume of a trade, price effect 76 white box testing 301 workarounds 303 working in capital markets 217–24 see also case studies; people involved in trade lifecycle in 1990s 217–19 culture clashes 219 equal opportunities 219–20 office politics 220–2, 246 positive/negative aspects 222–3 yield curves 312–13 zero bonds 27, 29, 47 Index compiled by Indexing Specialists (UK) Ltd WILEY END USER LICENSE AGREEMENT Go to www.wiley.com/go/eula to access Wiley’s ebook EULA. 

A Man for All Markets
by Edward O. Thorp
Published 15 Nov 2016

To sell a security short you borrow the desired quantity through your broker from someone who owns it, sell it in the marketplace, and collect the proceeds. Later you have to repurchase it at whatever price then prevails to meet your contractual obligation to return what you borrowed. If your buy-back price is below your earlier sale price, you win. If it is higher, you lose. Short selling overpriced warrants was profitable on average but risky. The same was true for buying stocks. The two risks largely canceled each other when we hedged the warrants by purchasing the associated common stock. In a historical simulation our optimized method made 25 percent a year with low risk, even during the great 1929 stock market crash and its aftermath.

…

The name hedge fund probably came about when the journalist Alfred Winslow Jones, inspired by what he learned after researching an article he was writing about investments, started a partnership in 1949. In addition to buying stocks he believed were cheap, he attempted to limit, or “hedge,” risk by also selling short shares he believed were overpriced. The short seller profits if the price falls and loses if the price rises. Short selling allows an investor to profit in a down market; a fund like Jones’s can, potentially, have more stable returns. Though Jones’s idea didn’t receive wide attention at first, a 1966 article in Fortune magazine by Carol Loomis, “The Jones Nobody Keeps Up With,” announced that Jones’s hedge fund had beaten all of the several hundred mutual funds over the last ten years and the possibilities became widely apparent.

Firefighting
by Ben S. Bernanke , Timothy F. Geithner and Henry M. Paulson, Jr.
Published 16 Apr 2019

But potential megamergers like Goldman–Wachovia and Morgan–Citi didn’t really make sense; Wachovia and Citi had their own challenges despite their insured deposits, and the matches raised two-drunks-in-a-ditch concerns. Meanwhile, we reluctantly encouraged the SEC to impose a temporary ban on the short selling of shares of financial firms, something we had resisted for months, and never would have considered in less extreme circumstances. We hated the idea of prohibiting bets against companies in trouble—it felt like outlawing negative reviews, which could undermine confidence in the marketplace we wanted to protect—but Morgan Stanley was on the brink of collapse, and Goldman would have followed, with major commercial banks close behind.

Handbook of Modeling High-Frequency Data in Finance
by Frederi G. Viens , Maria C. Mariani and Ionut Florescu
Published 20 Dec 2011

This process consists of a stopping time τ ∈ S, a consumption process c(·) positive and F−progressively measurable, and an Fτ measurable random variable ξ :  → [0, ∞) representing the lump-sum consumption at time τ . We regard πi (t) as the proportion of an agent’s wealth invested in stock i at time t; the remaining proportion 1 − π ∗ (t)1m = 1 − m i=1 πi (t) is invested in the money market. These proportions are not constrained to take values in the interval [0, 1]; in other words, we allow both short selling of stocks and borrowing at the interest rate of the bond. For a given, nonrandom, initial capital x > 0, let X (·) = X x,π ,C (·) denote the wealth process corresponding to a portfolio/consumption pair (π(·), C(·)) as above. This wealth process is defined by the initial condition X x,π ,C (0) = x and the equation dX (t) = m  m  πi (t)X (t){bi (t)dt + i=1 σij (t)dWj (t)} (11.10) i=1 + {1 − m  πi (t)}X (t)r(t)dt − dC(t) i=1 = r(t)X (t)dt + X (t)π ∗ (t)σ (t)dW0 (t) − dC(t), X (0) = x > 0, where we have set  t W0 (t)  W (t) + θ(s)ds, 0 ≤ t ≤ T

…

This process consists of a stopping time τ ∈ S0 , a consumption process c(·) positive and F−progressively measurable, and an Fτ measurable random variable ξ :  → [0, ∞) representing the lump-sum consumption at time τ . We regard πi (t) as the proportion of an agent’s wealth invested in stock i at time t; the remaining proportion 1 − π ∗ (t)1m = 1 − m i=1 πi (t) is invested in the money market. These proportions are not constrained to take values in the interval [0, 1]; in other words, we allow both short selling of stocks and borrowing at the interest rate of the bond. For a given, nonrandom, initial capital x > 0, let X (·) = X x,π ,C (·) denote the wealth process corresponding to a portfolio/consumption pair (π(·), C(·)) as above. This wealth process is defined by the initial condition X x,π ,C (0) = x and the equation dX (t) = m  πi (t)X (t){bi (t)dt + m  i=1 σij (t)dWj (t)} i=1 + {1 − m  πi (t)}X (t)rdt − dC(t) i=1 = rX (t)dt + X (t)π ∗ (t)σ (t)dW0 (t) − dC(t), X (0) = x > 0, (11.38) where we have set  W0 (t)  W (t) + t θ(s)ds, 0 ≤ t < ∞

Confessions of a Wall Street Analyst: A True Story of Inside Information and Corruption in the Stock Market
by Daniel Reingold and Jennifer Reingold
Published 1 Jan 2006

Plus the stocks had fallen so far that they were now good values. Based on my models, I saw Qwest shares rising as much as 33 percent and US West’s 28 percent. But I wasn’t totally sanguine either. “Our rating is Accumulate instead of Buy,” I wrote. “Despite such attractive upside, we anticipate the usual pressure from short-selling arbs and the approximate one year wait until merger close. We are also concerned about increasing wholesale [long distance] pricing pressure and new initiative startup costs at both companies.” Megan and I immediately started to work on a similar report on Global Crossing and Frontier. But, within a few days, I began to have second thoughts.

…

Securities and Exchange Commission, 17 CFR Part 242, approved February 20, 2003. 5. Mark Pincus, “Will SEC Ever Make Corporate Insiders Pay for Fraud,” http://markpincus.typepad.com/markpincus/2005/03/will_the_sec_ev_html. Glossary arbitrage, general—The practice of buying securities in one market and shorting (selling) them in another, with the goal of capturing as profit any price discrepancies between the two markets. arbitrage, merger—The practice of seeking to make a profit on the difference between the stock prices of companies involved in a merger. In most cases, arbs bet that the merger will be completed within a certain time frame and that the acquiree’s (target’s) stock price will eventually rise to the offered takeout price as the deal nears completion.

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

Mr Garber concluded that ‘As long as some doubt remains about the permanence of Stage III exchange rates [i.e. the currency union], the existence of the currently proposed structure of the ECB and Target does not create additional security against the possibility of an attack. Quite the contrary, it creates a perfect mechanism to make an explosive attack on the system.’39 Such an attack could take the form of a run on banks in a vulnerable country or actions (short-selling of bank stock, for example) that would cause such a run. Thus the creation of gigantic creditor and debtor positions inside the ECB might destroy the credibility of the system. Figure 11. Current Account Balances (per cent of GDP) Source: IMF World Economic Outlook Database The actions of the central banks helped countries in difficulty.

…

Dodd-Frank makes Glass-Steagall look like throat-clearing. The situation in Europe, while different in detail, is similar in substance. Since the crisis, more than a dozen European regulatory directives or regulations have been initiated, or reviewed, covering capital requirements, crisis management, deposit guarantees, short-selling, market abuse, investment funds, alternative investments, venture capital, OTC derivatives, markets in financial instruments, insurance, auditing and credit ratings. These are at various stages of completion. So far, they cover over 2000 pages. That total is set to increase dramatically as primary legislation is translated into detailed rule-writing.

Investment: A History
by Norton Reamer and Jesse Downing
Published 19 Feb 2016

He then went on to attend the Detroit College of Law, where no undergraduate degree was needed, and married Seema Silberstein, whose father, Ben Silberstein, was wealthy from real estate investments.128 Ben Silberstein never thought particularly highly of Ivan, calling him “Ivan the Bum.”129 Soon Ivan found himself in the securities business. He did not exactly have successful opening acts to his career. In his third finance job, one of his investments lost $20,000, and he was asked to leave. In his next job, he manipulated stock prices by buying up large volumes and received a $10,000 fine from the SEC for illegal short selling.130 Time and again, Boesky seems to have sought the quick way to gain. Fraud, Market Manipulation, and Insider Trading 185 Boesky soon launched his own investment firm, the equity of which was funded primarily by his wife’s family’s money. This time Boesky found success. He was soon taking a limousine to work, living in a tenbedroom home in Westchester County, New York, on 200 acres, and spending lavishly.

…

Macro hedge funds seek to anticipate major structural changes in an economy, either because of natural market forces (perhaps the market is grossly overheated and is due for a correction) or because of political circumstances. John Paulson of Paulson & Co., for instance, cashed in on the events that led the US economy into crisis by short selling subprime mortgage–backed securities. Because they seem to be predicting the future, many of the most successful macro hedge fund managers find themselves propelled meteorically into fame. However, there are abundant examples of macro managers who experience stumbling blocks to their prescience.

Them And Us: Politics, Greed And Inequality - Why We Need A Fair Society
by Will Hutton
Published 30 Sep 2010

He is a classic productive entrepreneur, creating wealth, challenging incumbents and now having to compete with copycat versions of his product as his patents expire. Contrast his contribution to wealth generation with Goldman Sachs’ ‘Fabulous’ Fab Tourre, the executive who is alleged to have invented a financial instrument at the instigation the Paulson hedge fund to make a billion dollars by short selling. Goldman rebut the accusation; but even if it is disproved, something similar will certainly have been concocted by someone in the run-up to the financial crash. Over the past generation, Britain has created the conditions for other ‘Fabulous’ investors to make fortunes by fair means or foul, while neglecting the innovation ecosystem that might have had made it easier for Ritchie and others like him to grow their companies.

…

INDEX Aberdeen University, 263 ABN AMRO, 150 Abramovitch, Roman, 64, 65, 67 accountancy firms, 296 Acemoglu, Daron, 299 aerospace, 136, 219, 268 Afghanistan, 13, 102, 144, 322 Africa, 71–2, 322, 383, 385 AIG, 152, 175, 176 airline industry, 30, 91, 109, 134, 143 Akerlof, George, 43 Alcoa, 133 alcohol policy, 335 Alessandri, Piergiorgio, 151, 153 Amazon, 253 Anderson, Elizabeth, 79 angels, business, 244, 252 Anglo Irish Bank, 181 Apple Inc., 29–30, 65–6, 71, 253 apprenticeships, 10, 295 Arculus, Sir David, 180 Argentina, 368 Aristotle, 39, 274 ‘arms race’ effects, 105 Arup Group, 66, 67, 93 Asda, 93 Ashcroft, Lord, 344 Ashdown, Paddy, 141 Asian Tiger exports, 149, 208, 355 AT & T, 133–4 Atari, 30 BAA, 8, 257–8 baby boomer generation, 34, 372–3 ‘Baby P’ case, 10, 325–6 Bagehot, Walter, 156–7 Bailey, Bob, 16, 25 Baker, Kenneth, 276 Baldacci, Emanuele, 367 Baldwin, Stanley, 315 Balls, Ed, 138, 147, 338 Bank of America, 152, 158, 175, 192 Bank of England, 4, 7–8, 129, 148, 180, 208, 250, 339, 359; lender-of-last-resort function, 157, 158, 160; Monetary Policy Committee, 185, 186, 264; reserve requirements scrapped (1979), 161, 208 Bank of International Settlements (BIS), 169, 182 Bank of Scotland, 186, 251 bankers, 4–5, 25–6, 62, 63–4, 180, 188; errors that caused the crash, 188–96, 197–204; gambling culture, 7, 8; pay see pay of executives and bankers Bankers Trust (New York), 140, 167 banking and banks: see also under entries for individual organisations; bail-out of, 3, 7–8, 19, 24, 138, 152–3, 172, 175, 176, 181, 204–5, 210, 389, 392; balance sheets, 7, 160, 164, 165, 191, 208, 210; bank runs, 9, 156–7, 158, 175–6, 202; borrow short and lend long principle, 154, 155–6, 157, 158–9; capital ratios, 151, 158, 162–3, 169, 170, 207, 208; credit-rating agencies and, 151, 196, 207; deposit insurance and, 158, 160; diversification, 154–5, 157, 165, 199, 354; fairness/desert and, 64, 206–7; interbank money markets, 164, 170, 176, 187–8, 202, 204; investment banks, 6, 28, 42, 101, 103, 150–1, 158, 165, 166, 170, 172–6, 195–6, 207; maturity transformation, 155–6, 157, 158–9; need for network of specialist banks, 251–2, 265, 371; nineteenth-century collapses, 156–7; post-crunch deleverage pressures, 359; principles and strategies, 154–6, 157; regulation of see regulation; relationship finance, 244, 251–2, 256–7; remoteness of management, 173–4; required reforms of, 205–10, 251–2, 371; short-term structure of lending, 33; banking and banks – continued socially vital role of, 155, 157; subsidiaries and special purpose vehicles, 181; unproductive entrepreneurship and, 28, 101, 103; vast assets/loans/profits, 32, 138, 147, 170, 172, 201; zero loyalty of front-line staff, 174 Barclay brothers, 327 Barclays, 24, 176, 177–8, 181, 215, 296, 363 Barker, Kate, 185 Basel system, 158, 160, 163, 169, 170–1, 196, 385 Baumol, William, 101, 111, 116, 253, 256 Bayerische Landesbank, 196 Bear Stearns, 150, 152, 158–9, 166, 173–4, 187 Bebchuk, Lucian, 198 Becht, Bart, 82–3 Beckwith, John Lionel, 179 behavioural psychology, 44, 47–50, 59–61 Bekar, Clifford, 108, 263 Bell, Alexander Graham, 221 Ben & Jerry’s, 266 Benz, Matthias, 86 Berlusconi, Silvio, 317, 328 Bettelheim, Bruno, 86 Better Government Initiative, 313, 336–7 Better Regulation Task Force, 180 Bhagwati, Jagwad, 163 Big Bang (1986), 90, 162 bin Mahfouz, Khalid Salim, 333 biotechnology, 109, 229, 240, 263, 268 Birt, John, 324 Bischoff Inquiry, 178 BISTRO (broad index secured trust offering), 169, 170, 196 Black, Fisher, 191 Blair, Tony, 5, 17, 138, 141–3, 144, 148–9, 276–7, 313, 328, 342; centralisation of power, 14–15, 313, 334, 337, 341; Iraq War and, 14, 36, 144; Rupert Murdoch and, 318; neo-conservative economics and, 388; ‘third-way’ as enthronement of resignation, 389–90; welfare reforms, 81 Blanchflower, Danny, 264–5 Blanden, Jo, 283–4 Blankfein, Lloyd, 42, 63, 168 BMW, 91 Boeing, 136, 256 Bologna University, 261 Born, Brooksley, 182–3 Bowen, Jeremy, 323 Boyle, Susan, 314 BP, 216–17, 392 Branson, Richard, 30 Brazil, 354–5, 385 Bretton Woods system, 159 Brinkley, Ian, 233 Briscoe, Simon, 294 Bristol University, 263 British Airways (BA), 30, 91 British Broadcasting Company (BBC), 321, 322, 323, 329, 330–1, 350, 389 British National Party (BNP), 16, 24–5, 82 Britishness, 15–16, 124, 392–3, 395 Brompton folding bicycle, 103, 105 Brooks, Clem, 281, 282 Brown, Gordon, 5, 12, 141, 178, 302, 314, 328; centralisation of power, 14, 334, 337, 341; as Chancellor, 138, 143, 145–8, 215, 245; deal with Blair (1994), 148; Gillian Duffy blunder by, 394; general election (2010) and, 20, 378, 394; neo-conservative economics and, 144–8, 388; as visionless, 391; Where There is Greed: Margaret Thatcher and the Betrayal of Britain’s Future (1989), 144 Browne, John, 216 Brunel, Isambard Kingdom, 126 Buffett, Warren, 116, 173, 222 Building Schools for the Future programme, 371 building societies, demutualisation of, 156, 186 Buiter, Wilhelm, 172 Burrows, Paul, 59 Buscombe, Baroness, 332 Bush, George W., 17, 36, 135, 177 Cabinet Office, 218–19, 336, 337 Cable, Vincent, 220 Cambridge University, 9, 363 Cameron, David, 20, 179, 233–4, 235, 318, 338, 342; ‘Big Society’ policy, 19–20, 234, 271, 280 Campbell, Alastair, 141, 142, 224, 312 Canada, 121, 354, 358–9, 383 capital controls, abolition of, 32, 161 capitalism: see also entrepreneurs; innovation; amorality of, 16–19; ‘arms race’ effects, 105; boom and bust cycle, 181–7, 392; deregulation (from 1970s), 159–63, 388; fairness and, ix, x, 23–7, 41, 106, 122–3, 206–7, 210, 249, 385, 386, 394; as immutable force of nature, ix, 23, 40–2; incumbent firms, 29–30, 31, 105, 106, 110, 111–12, 253–5, 257, 297; interconnectedness of markets, 200–2, 204; knowledge-entrepreneurship dynamic, 27–8, 31, 103, 110–11, 112–13; liquidity as totemic, 199, 200, 202, 240, 243; need for ‘circuit breakers’, 197, 199, 202, 203; network theory and, 199–204, 206; required reforms of, 205–9, 215–16; stakeholder, x, 148–9; undue influence of, 32–3 Carlaw, Kenneth, 108, 263 Carnegie, Andrew, 195, 303 cars, motor, 91, 108, 109, 134, 269 Castells, Manuel, 317 Cayne, Jimmy, 173–4 CCTV cameras, 10 celebrity culture, 282, 314 central banks, 154, 157, 158, 160, 182, 185, 187, 208; see also Bank of England; Federal Reserve, 169–70, 176, 177, 183 Cerberus Capital Management, 177 Cervantes, Miguel de, 274 Channel 4, 330, 350 Charles I, King of England, 124–5 Charter One Financial, 150 chavs, mockery of, 25, 83, 272, 286–8 child poverty, 12, 21, 74–5, 83, 278, 279, 288–90, 291 China, x, 101, 112, 140, 144, 160, 226, 230, 354–5, 385; consumption levels, 375–6, 379, 380, 381; economic conflict with USA, 376–7, 378–80, 381, 382, 383; export led growth, 36, 169, 208, 226, 355–6, 375–7, 379–81, 382–3; rigged exchange rates, 36, 169, 355, 377, 378–9; surpluses of capital and, 149, 154, 169, 171, 208, 226, 375; unfairness of world system and, 383, 385 Christianity, 53, 54, 352, 353 Church of England, 128 Churchill, Winston, 138, 273, 313 Churchill Insurance, 150 Cisco, 253 Citigroup, 152, 158, 172, 177, 184, 202, 203, 242, 247 city academies, 278, 307 City of London, 34, 137, 138, 178–9, 252, 359; as incumbent elite, 14, 26, 31, 32–3, 210, 249, 355; in late nineteenth-century, 128–30; light-touch regulation of, 5, 32, 138, 145, 146–7, 151, 162, 187, 198–9; New Labour and, x–xi, 5, 19, 22, 142, 144–5, 355; remuneration levels see pay of executives and bankers civic engagement, 86, 313 civil service, 13, 221, 273, 312, 343 Clasper, Mike, 178 Clayton Act (USA, 1914), 133 Clegg, Nick, 22, 218, 318, 327–8, 342, 391 Clifton, Pete, 321 Clinton, Bill, 140, 177, 183 coalition government (from May 2010), 14, 20, 22, 37, 307, 311, 343, 346, 390–2; abolition of child trust fund, 302; capital spending cuts, 370–1; deficit reduction programme, xi, 19, 34, 214, 227, 357, 360–1, 364, 369–71, 373, 390–2; emergency budget (June 2010), 369–70; market fundamentalism and, 370; political reform commitment, 35, 341, 343–4, 346, 350, 390, 391; proposed financial reforms, 208, 209, 245, 252, 371; repudiation of Keynesian economics, xi, 390–1 Cohan, William, 158–9 Cohen, Ronald, 12, 245 collapse/crash of financial system, x, xi, 4, 9, 41, 144, 146, 152–4, 158–9, 168; costs of, 7, 19, 138, 152–3, 172, 214–15; errors responsible for, 136, 187–96, 197–204; global interconnectedness, 375, 382–3; lessening of internationalism following, 376–83; need to learn from/understand, 36–7; predictions/warnings of, 148, 153, 180, 182–5; recommended policy responses, 215–16; results of previous credit crunches, 358, 359–60, 361–2 collateralised debt obligations (CDOs), 155, 167–8, 174 colonialism, 109, 124 Commodity Future Trading Commission, 182–3 communism, collapse of in Eastern Europe, 16, 19, 135, 140, 163 competition, 29, 30, 33, 51, 156, 185, 186, 207–8, 251; see also ‘open-access societies’; City of London and, 160, 178, 179, 198–9; deregulated banking and, 160, 161, 163, 164, 178, 179, 181; European Union and, 251, 258, 259; fairness and, 89–90, 99, 272; incumbent elites/oligarchs and, 104, 114, 129–30, 131–4, 257; innovation and, 40, 114, 257–60; national authorities/regimes, 201–2, 257–60, 316, 318; state facilitation of, 31 Competition Commission, 257–8 computer games, 233 Confederation of British Industry (CBI), 4, 6–7 Conservative Party, xi, 5, 11, 14, 97–8, 220, 343, 378; broken Britain claims, 16, 227, 271; budget deficit and, 19, 224, 357, 360–1, 368, 379; City/private sector funding of, 179, 257, 344; decline of class-based politics, 341; deregulation and, 32, 160, 161; fairness and, 83, 302, 374, 390; general election (1992) and, 140–1; general election (2010) and, 20, 97, 227, 234, 271, 357, 374, 379, 390; Conservative Party – continued government policies (1979-97), 32, 81, 275–6, 290; inheritance/wealth taxes and, 74, 302–3; market fundamentalism and, 5, 17, 138, 147, 160, 161; poverty and, 21, 279; reduced/small state policy, 20, 22, 233–4, 235 construction industry, 5, 33, 268 consumer goods, types of, 266–7 Continental Illinois collapse, 152, 162 Convention on Modern Liberty, 340 Cook, Robin, 142 Cootner, Paul, 194–5 Copenhagen climate change talks (2009), 226, 231, 385 Corporate Leadership Council, US, 93 Corzine, Jon, 177 county markets, pre-twentieth-century, 90 Coutts, Ken, 363 Cowell, Simon, 314, 315 ‘creative destruction’ process, 111, 112, 134 creative industries, 11, 71, 355 credit cards, 64, 354 credit crunch: see collapse/crash of financial system credit default swaps, 151, 152, 166–8, 170, 171, 175, 176, 191, 203, 207 Crédit Lyonnais collapse, 152 credit-rating agencies, 151, 165, 175, 196, 197, 248, 269, 362, 388; funding of, 151, 196, 207 criminal activity/allegations, 7, 101, 103, 104–5, 138, 167–8 Crosby, James, 178 Cuba, 61 culture, British, 12, 187, 282, 314 Dacre, Paul, 324, 326, 329 Daily Mail, 218, 286, 288, 315, 324, 325–7, 339, 342 Daily Telegraph, 288, 317, 319, 327 Darling, Alistair, 149, 204, 252 Darwin, Charles, 31 Data Monitor, 186 Davies, Howard, 198 Davies, Nick, Flat Earth News, 319, 321, 323–4, 326, 331–2 de Gaulle, Charles, 65 debt, 33, 155, 209, 351–63; corporate/commercial, 8, 29, 181, 245, 248, 352, 354, 359, 363, 374; moral attitudes towards, 351–4, 357, 360–1; necessity of, 155, 351, 353, 354; private, 5, 186, 187, 210, 226, 279–80, 354–7, 359, 363, 373; public, 9, 34, 164, 166, 167, 182, 203, 214, 224–6, 356–7, 362–3, 375, 388, 393; sustainable level of, 356–7, 368–9 Defence Advanced Research Projects Agency (DARPA), 265 defence and armed forces, 34, 372 deficit, public, 4, 34, 213, 224–6, 335, 364–74; coalition’s reduction programme, xi, 19, 34, 214, 227, 357, 360–1, 364, 369–71, 373, 390–2, 393; need for fiscal policy, 224–5, 226, 357–8, 364, 365–9, 370, 374; speed of reduction of, 213, 224–5, 360–1, 368, 371 Delingpole, James, 287 Delong, Brad, 27, 106 democracy, 13–15, 235, 310–16, 333–48; centralisation of power and, 14–15, 35, 217, 313, 334, 337, 342; fair process and, 86, 89, 96–9; incumbent elites and, 35, 99; industrial revolution and, 128; media undermining of, 315–16, 317–18, 321–9, 333, 350; ‘open-access societies’ and, 136, 314 Democratic Party, US, 18, 140, 183, 379 Demos, 289 Deng Xiao Ping, 140 Denham, John, 21 deprivation and disadvantage, 10, 34, 288–93, 307–8, 393; low-earning households, 11–12, 13, 291, 361; weight of babies and, 13; young children and, 74–5, 83, 288–90 derivatives, 140, 145, 150–1, 164–8, 171, 175, 188, 207, 209; City of London and, 32, 137, 150–1, 157, 199; mathematical models (‘quants’) and, 188, 191; regulation and, 183, 197–8, 199 desert, due, concept of, 4, 24, 38–43, 45–7, 50–63, 64–8, 73–7, 80–2, 223, 395; see also effort, discretionary; proportionality; big finance and, 40–2, 82, 167, 174, 176, 210; debt and, 351–2; diplomacy/international relations and, 385–6; Enlightenment notions of, 53–6, 58–9, 112; luck and, 70, 73–7, 273; poverty relief systems and, 80–2, 277–8; productive entrepreneurship and, 102–3, 105–6, 112, 222, 392–3; taxation and, 40, 220, 266 Deutsche Bank, 170 developing countries, 71–2, 160, 354–5, 375, 376, 385 Diamond, Bob, 24 Dickens, Charles, 353 digitalisation, 34, 231, 320, 349, 350 Doepke, Matthias, 115–16 dot.com bubble, 9, 193 Drugs Advisory Panel, 11 Duffy, Gillian, 394 Durham University, 263 Dworkin, Ronald, 70 Dyson, James, 28, 33 East India Company, 130 Easyjet, 28, 233 eBay, 136 economic theory, 43–4, 188–9, 366; see also Keynesian economics; market fundamentalism economies of scale, 130–1, 254–5, 258 The Economist, 326, 330, 349 economy, British: see also capitalism; financial system, British; annual consumption levels, 375; balance of payments, 363–4; as ‘big firm’ economy, 254; change in landscape of trading partners, 230–1; coalition capital spending cuts, 370–1; collapse of tax base, 224, 368; cumulative loss of output caused by crash, 138, 153, 172, 214–15; desired level of state involvement, 234–5; domination of market fundamentalism, 16–17; economic boom, 3–4, 5–6, 12, 143, 173, 181–7, 244–5; fall in volatility, 365; fiscal deficit, 368; fiscal policy, 208, 224–5, 226, 357–8, 364–9, 370, 374; growth and, 9–10, 214–15, 218–19, 224, 359, 363; inefficient public spending, 335; investment in ‘intangibles’, 232–3; in late nineteenth-century, 128–30; ‘leading-edge’ sectors, 218–19; need for engaged long term ownership, 240–4, 249–51; as non-saver, 36, 354; potential new markets/opportunities, 231–3; public-private sector interdependence and, 219–22, 229–30, 261, 265–6, 391, 392; required reforms of, 20, 239–44, 249–52, 264–6, 371–4 see also national ecosystem of innovation; ‘specialising sectors’, 219; urgent need for reform, 36–7; volatility of, 297–8; vulnerability of after credit crunch, 358–64 economy, world: acute shortfall of demand, 375–6; Asian and/or OPEC capital surpluses and, 149, 153–4, 169, 171, 208, 226, 354, 375; conflicts of interest and, 137, 138; deregulation (from 1970s), 159–63; emerging powers’ attitudes to, 226; entrenched elites and, 137–8, 210; fall in volatility, 365; international institutions as unfair, 383, 385; London/New York axis, 149, 150–1, 157–8, 160, 187, 202; need for international cooperation, 357–8, 379–80, 381–3, 384, 385–6; post-crunch deleverage pressures, 359–60, 374–5; protectionism dangers, 36, 358, 376–7, 378, 379, 382, 386; savers/non-savers imbalance, 36, 169, 208, 222, 355, 356, 375–6, 378–83; shift of wealth from West to East, 36, 383–4; sovereign debt crises, 167, 203, 214; unheeded warnings, 182–5; wrecking of European ERM, 140, 144 Edinburgh University, 145 education, 10, 20–1, 128, 131, 272–4, 276, 278, 292–5, 304–8, 343; Building Schools for the Future programme, 371; cognitive and mental skills, 288–90, 304–6; private, 13, 114, 264–5, 272–3, 276, 283–4, 293–5, 304, 306 effort, discretionary, 50, 53, 54–5, 58–60, 80, 90–1, 114, 134; see also desert, due, concept of; fair process and, 91–4; indispensability and, 65–7; innovation and invention, 62, 65, 102–3, 105–6, 112, 117, 131, 223, 262–3, 392–3; luck and, 26–7, 65, 67, 70, 71, 73–4, 75–7; productive/unproductive, 43, 46–7, 51–2, 62, 64–5, 102–3, 392–3; proportionate reward for, 26, 39–40, 44, 47, 61, 74, 76–7, 84, 122, 272, 273, 2 84 egalitarianism, 27, 53–4, 55–6, 61, 75, 78–80, 144, 341, 343; Enlightenment equal worth concept, 53, 55, 59–60 Ehrenfeld, Rachel, 333 Eisman, Steve, 207 electoral politics: see also general election (6 May 2010); general elections, 97, 138, 277, 315; fair process and, 96–9; franchise, 128; general election (1992), x, 138, 140–1, 144, 148, 277; general election (1997), x, 138, 141 electricity, 134, 228, 256 electronic trading, 105 elites, incumbent, 23, 31–3, 99, 131; City of London, 14, 26, 31, 32–3, 210, 249, 355; competition and, 104, 113, 114, 129–30, 131–4, 257; democracy and, 35, 99; Enlightenment and, 122; history of (from 1880s), 131–4; history of in Britain (to 1900), 124–30; innovation and, 29–30, 110, 111–12, 113, 114, 115, 116; modern big finance and, 135, 137–8, 180, 210, 387–9; in ‘natural states’, 111, 113, 114–15, 116, 123–4, 127; New Labour’s failure to challenge, x–xi, 14, 22, 388, 389–90; world economy and, 137–8, 210 EMI, 28, 247, 248 employment and unemployment, 6, 75, 291–3, 295, 300, 373, 393; employment insurance concept, 298–9, 301, 374; lifelong learning schemes, 300, 301; lifelong savings plans, 300; unemployment benefit, 81, 281 Engels, Friedrich, 121–2 English language as lingua franca, 124 Enlightenment, European, 22, 30–1, 146, 261, 314–15; economics and, 104, 108–9, 116–17, 121–3; notions of fairness/desert, 53–6, 58–9, 112, 122–3, 394; science and technology and, 31, 108–9, 112–13, 116–17, 121, 126–7 Enron affair, 147 entrepreneurs: see also innovation; productive entrepreneurship; capitalist knowledge dynamic, 27–8, 31, 110–11, 112–13; challenges of the status quo, 29–30; Conservative reforms (1979-97) and, 275; private capital and, 241; public-private sector interdependence and, 219–22, 229–30, 261, 265–6, 391, 392; rent-seeking and, 61–2, 63, 78, 84, 101, 105, 112, 113–14, 116, 129, 135, 180; unproductive, 28–9, 33, 61–2, 63, 78, 84, 101–2, 103–5, 180 environmental issues, 35–6, 71–2, 102, 226, 228, 231, 236, 385, 390, 394; due desert and, 68; German Greens and, 269 Erie Railroad Company, 133 Essex County Council, 325, 332 European Commission, 298 European Exchange Rate Mechanism (ERM), 140, 144, 166 European Union (EU), 11, 82, 179, 379–80, 383–4, 385; British media and, 15, 328, 378; Competition Commissioner, 251, 258, 259; scepticism towards, 15, 36, 328, 377, 378, 386 eurozone, 377 Fabian Society, 302–3 factory system, 126 fairness: see also desert, due, concept of; proportionality; abuse/playing of system and, 24–5, 27; asset fairness proposals, 301–3, 304; behavioural psychology and, 44, 47–50, 59–61; Blair’s conservative view of, 143; Britishness and, 15–16, 392–3, 395; capitalism and, ix, x, 23–7, 41, 106, 122–3, 206–7, 210, 249, 385, 386, 394; challenges to political left, 78–83; coalition government (from May 2010) and, 22, 37; commonly held attitudes, 44, 45–7; deficit reduction and, 226, 227, 374; economic and social determinism and, 56–8; Enlightenment notions of, 53–6, 58–9, 112, 122–3, 394; fair process, 84–94, 96, 98–9, 272; as foundation of morality, 24, 26, 45, 50; individual responsibility and, 39, 78–9; inequality in Britain, 78, 80, 275–6, 277–8, 342; international relations and, 226, 385–6; ‘Just World Delusion’, 83; luck and, 72–7; management-employee relationships, 90–2; models/frameworks of, 43–58; need for shared understanding of, 25, 37, 43; partisanship about, 42–3; politicians/political parties and, 22, 83, 271–2, 302–3, 374, 391–2; popular support for NHS and, 75, 77, 283; pre-Enlightenment notions, 52–3; shared capitalism and, 66, 92–3; state facilitation of, ix–x, 391–2, 394–5; welfare benefits to migrants and, 81–2, 282, 283, 284 Farnborough Sixth Form College, 294 Federal Reserve, 169–70, 176, 177, 183 Fees Act (1891), 128 Fertile Crescent, 106 feudalism, European, 53–4, 74, 104, 105 financial instruments, 103, 148, 157, 167–8 Financial Services and Markets Act (2001), 198 Financial Services Authority (FSA), 24, 147, 162, 178, 198–9, 208 financial system, British: see also capitalism; economy, British; Asian and/or OPEC capital surpluses and, 149, 154, 354; big finance as entrenched elite, 136, 137–8, 176, 178–80, 210, 387–9; declining support for entrepreneurship, 241; deregulation (1971), 161; fees and commissions, 33; importance of liquidity, 240, 243; lack of data on, 241; London/New York axis, 149, 150–1, 157–8, 160, 187, 202; massive growth of, 137, 138, 209, 219; need for tax reform, 209–10; regulation and see regulation; required reforms to companies, 249–50; savings institutions’ share holdings, 240–1; short termism of markets, 241, 242–3; unfairness of, 138, 210 Financial Times, 12, 149, 294, 330, 349, 361 Fink, Stanley, 179 fiscal policy, 208, 224–5, 226, 357–8, 364–9, 374; coalition rejection of, 370 fish stocks, conservation of, 394 Fitch (credit-rating agencies), 248 flexicurity social system, 299–301, 304, 374 Forbes’ annual list, 30 Ford, Henry, 195, 302 foreign exchange markets, 32, 161, 164, 165, 168, 363, 367; China’s rigged exchange rate, 36, 169, 355, 377, 378–9; currency options, 166, 191; eurozone, 377 foreign takeovers of British firms, 8, 388 Fortune magazine, 94 Foster, Sir Christopher, 313 foundation schools, 307 France, 51–2, 123–4, 163, 372, 375, 377 free trade, 163, 334, 379 Frey, Bruno, 60, 86 Friedman, Benjamin, 282–3 Fukuyama, Francis, 140 Fuld, Dick, 192 Future Jobs Fund, 373 G20 countries, 209, 358, 368, 374 Galliano, John, 143 Gardner, Howard, 274, 305–6 gated communities, 13 Gates, Bill, 71 Gates, Bill (Senior), 222 Gaussian distribution, 190–1, 194 ‘gearing’, 6 general election (6 May 2010), 97, 142, 179, 214, 217, 227, 234, 271, 314, 318, 327–8, 334, 378; Gillian Duffy incident, 394; result of, xi, 20, 345–6, 390 ‘generalised autoregressive conditional heteroskedasicity’ (GARCH), 194 genetically modified crops, 232 Germany, 36, 63, 244, 262, 269, 375–6, 379, 380; export led growth, 355–6, 375, 381–2; Fraunhofer Institutes, 252, 264; Greek bail-out and, 377; pre-1945 period, 128, 129, 134, 382, 383 Gieve, Sir John, 339–40 Gilligan, Andrew, 329 Gladwell, Malcolm, 76–7 Glasgow University, 323 Glass-Steagall Act, 162, 170, 202–3 Glastonbury festival, 143 globalisation, 32, 98, 140, 143, 144, 153–4, 163, 182, 297, 363, 366, 380 Goldman Sachs, 42, 63, 103, 150, 167–8, 174, 176, 177, 205 Goodwin, Sir Fred, 7, 150, 176, 340 Google, 131, 136, 253, 255, 258, 262 Goolsbee, Austin, 52 Gorbachev, Mikhail, 140 Gough, Ian, 79 Gould, Jay, 133 Gould, Philip, 142 government: see also democracy; political system, British; cabinet government, 312, 334, 337; centralisation of power, 14–15, 35, 217, 313, 334, 337, 341, 342; control of news agenda, 14, 224, 313; disregard of House of Commons, 14–15, 223, 339, 345; Number 10 Downing Street as new royal court, 14, 337, 338, 346, 347; press officers/secretaries, 14, 180, 224, 312; Prime Ministerial power, 337, 344, 345, 346 GPS navigation systems, 233, 265 Gray, Elisha, 221 Great Depression, 159, 162, 205, 362 Greece: classical, 25, 26, 38, 39, 44–5, 52–3, 59, 96, 107, 108; crisis and bail-out (2010), 167, 371, 377, 378 Green, Sir Philip, 12, 29, 33 Green Investment Bank, proposed, 252, 371 Greenhead College, Huddersfield, 294 Greenspan, Alan, 145–6, 165, 177, 183, 184, 197–8 Gregory, James, 277 growth, economic: Britain and, 9–10, 214–15, 219, 221, 359, 364; education and, 305–6; export led growth, 36, 169, 208, 226, 355–6, 375–7, 378–83; social investment and, 280–1 GSK, 219, 254 the Guardian, 319, 330, 349 Gupta, Sanjeev, 367 Gutenberg, Johannes, 110–11 Habsburg Empire, 127 Haines, Joe, 312 Haji-Ioannous, Stelios, 28 Haldane, Andrew, 8, 151, 153, 193, 214, 215 the Halifax, 186, 251 Hamilton, Lewis, 64, 65 Hammersmith and Fulham, Borough of, 167 Hampton, Sir Philip, 173 Hands, Guy, 28, 178, 246–8 Hanley, Lynsey, 291, 293, 302 Hanushek, Eric, 305–6 Hart, Betty, 289 Harvard University, 47, 62, 198 Hashimoto administration in Japan, 362 Hastings, Max, 217–18 Hauser, Marc, 47–50 Hawley, Michael, 65–6 Hayward, Tony, 216–17 HBOS, 157, 158, 178, 251 health and well-being, 9, 75, 77, 106, 232, 233, 290–1; see also National Health Service (NHS) Heckman, James, 290 hedge funds, 6, 21, 103, 157–8, 167–8, 172, 203, 205, 206, 240; collapses of, 152, 173–4, 187, 202; as destabilisers, 166–7, 168; destruction of ERM, 140, 144, 166; near collapse of LTCM, 169–70, 183, 193, 200–1 hedging, 164, 165–6 Heinz, Henry John, 302 Hermes fund management company, 242 Herrman, Edwina, 179 Herstatt Bank collapse, 152 Hetherington, Mark, 84 Hewitt, Patricia, 180 Hewlett-Packard, 30 Hills Report on social housing, 290 Hilton, Paris, 304 Himmelfarb, Gertrude, 146 Hirst, Damien, 12 history, economic, 121–36, 166, 285–6, 353–4 Hobhouse, Leonard, 220, 222, 234, 235, 261, 266 Hobsbawm, Eric, 100 Hoffman, Elizabeth, 60 Holland, 113, 124, 230 Honda, 91, 269 Hong Kong, 168 Hopkins, Harry, 300 Horton, Tim, 277 House of Commons, 14–15, 223, 312–13, 337–9, 345 House of Lords, 15, 128, 129, 312, 334, 344, 346–7 housing, social, 10, 289, 290–1, 292, 308–9 housing cost credits, 308–9 HSBC, 181, 251 Huhne, Chris, 346 Hunt family, sale of cattle herds, 201 Hurka, Thomas, 45–6 Hutton, Will, works of, x; The State We’re In, x, 148–9 IBM, 29, 164, 254 Iceland, 7, 138 ICT industry, 9, 29–30, 109, 134, 135–6, 182, 229 immigration, 11, 143, 326, 328, 342, 343, 386, 394; from Eastern Europe, 82, 281–2, 283; welfare state and, 81–2, 281–2, 283, 284 incapacity benefit, 27 the Independent, 93, 330 Independent Safeguarding Authority, 339 India, 144, 226, 230, 254, 354–5 individual responsibility, 17, 38, 39, 78–9 individualism, 54, 57, 66, 111, 221, 281, 341, 366; capitalism/free market theories and, ix, 17, 19, 27, 40, 145, 221, 234–5 Indonesia, 168 Industrial and Commercial Finance Corporation (now 3i), 250 industrial revolution, 28, 112, 115, 121–3, 124, 126–8, 130, 315 inflation, 6, 32, 355, 364, 365; targets, 163, 165, 208, 359 Ingham, Bernard, 312 innovation: see also entrepreneurs; national ecosystem of innovation; as collective and social, 40, 131, 219–22, 261, 265–6, 388; comparisons between countries, 67; competition and, 40, 114, 257–60; development times, 240, 243; discretionary effort and, 62, 65, 102–3, 105–6, 131, 222, 392–3; dissemination of knowledge and, 110–11, 112–13, 219–22, 265–6; due desert and, 40, 62, 67, 112, 117; ‘financial innovation’, 63–4, 138, 147, 149, 153–4, 182; general-purpose technologies (GPTs), 107–11, 112, 117, 126–7, 134, 228–9, 256, 261, 384; high taxation as deterrent, 104, 105; history of, 107–17, 121–7, 131–4, 221; increased pace of advance, 228–9, 230, 266–7; incremental, 108, 254, 256; incumbent elites and, 29–30, 104, 106, 109, 111–12, 113, 114, 115, 116, 257; large firms and, 251–2, 254–5; as natural to humans, 106–7, 274; need for network of specialist banks, 251–2, 265, 371; in ‘open-access societies’, 109–13, 114, 116–17, 122–3, 126–7, 131, 136, 315; patents and copyright, 102, 103, 105, 110, 260–1, 263; private enterprise and, 100–1; regulation and, 268–70; risk-taking and, 6, 103, 111, 189; short term investment culture and, 33, 242–3, 244; small firms and, 252, 253–4, 255–6; universities and, 261–5 Innovation Fund, 21, 251, 252 Institute of Fiscal Studies, 275–6, 363, 368–9, 372 Institute of Government, 334, 335, 337, 343 insurance, 165–6, 187, 240, 242 Intel, 255, 256 intellectual property, 260–1 interest rates, 164, 191, 352–3, 354, 357, 359, 360, 361, 362, 367, 380 internal combustion engine, 28, 109, 134 International Monetary Fund (IMF), 9, 152–3, 177–8, 187, 207, 226, 383, 384; Asian currency crisis (1997) and, 168–9; proposed bank levy and financial activities tax, 209; support for fiscal policy, 367 internet, 11, 28, 52, 109, 134, 227, 256, 265; news and politics on, 316–17, 321, 349; pay-walls, 316, 349; as threat to print media, 324, 331, 349 iPods, 105, 143 Iraq War, 14–15, 18, 36, 144, 329 Ireland, 138 iron steamships, 126 Islam, 352, 353 Islamic fundamentalism, 283, 384 Israel, 251, 322–3 Italy, 101, 103, 317, 328 ITN, 330, 331 James, Howell, 180 Japan, 36, 67, 140, 163, 168, 244, 369, 375, 376, 385, 386; credit crunch (1989-92), 359–60, 361–2, 382; debt levels, 356, 362, 363; incumbent elites in early twentieth-century, 134; Tokyo Bay, 254; Top Runner programme, 269 Jenkins, Roger, 296 Jobcentre Plus, 300 Jobs, Steve, 29–30, 65–6, 71 John Lewis Group, 66, 67, 93, 246 Johnson, Boris, 179 Johnson, Simon, 177 Jones, Tom, 242 Joseph Rowntree Foundation, 21, 278–9 journalism, 318–21, 323–4, 326–7 Jovanovic, Boyan, 256 JP Morgan, 169, 191–2, 195–6 judges, 15 justice systems, 30–1, 44–5, 49; symbolised by pair of scales, 4, 40 Kahneman, Daniel, 94–5 Kant, Immanuel, 73, 112, 274 Kay, John, 175 Kennedy, Helena, 340 Keynesian economics, x, xi, 184, 190, 196–7, 354, 362, 390–1 Kindleberger, Charles, 184 King, Mervyn, 213 Kinnock, Neil, 142 kitemarking, need for, 267 Klenow, Peter, 52 Knetsch, Jack, 94–5 Knight, Frank, Risk, Uncertainty and Profit (1921), 189, 191, 196–7 knowledge: capitalist advance of, 27–8, 31, 110–11, 112–13; public investment in learning, 28, 31, 40, 131, 220, 235, 261, 265 knowledge economy, 8, 11–12, 34, 135–6, 229–33, 258, 273–4, 341, 366; credit growth and, 355; graduate entry to, 295; large firms and, 251–2, 254–5; small firms and, 252, 253–4, 255–6, 261; state facilitation of, 219–22, 229–30 Koizumi administration in Japan, 362 Koo, Richard, 360, 361–2 Kuper, Simon, 352 Kwak, James, 64, 177 labour market, 52, 62, 83, 95; flexibility, 5, 275, 276, 299, 364–5, 387 laissez-faire ideology, 153, 198–9, 259 Laker, Freddie, 30 Lambert, Richard, 6–7 language acquisition and cognitive development, 288, 289 Large Hadron Collider, 263 Latin American debt crisis, 164 Lavoisier, Antoine, 31 Lazarus, Edmund, 179 Leahy, Sir Terry, 295 Learning and Skills Council, 282, 300 left wing politics, modern, 17, 38, 78–83 Lehman Brothers, 150, 152, 165, 170, 181, 192, 204 lender-of-last-resort function, 155, 158, 160, 187 Lerner, Melvin, 83 leverage, 6, 29, 154–6, 157, 158, 172, 179, 180, 198, 204, 209–10, 254, 363; disguised on balance sheet, 181, 195; effect on of credit crunches, 358, 359, 360, 361, 374–5; excess/massive levels, 7, 147–8, 149, 150–1, 158, 168, 170, 187, 192, 197, 203; need for reform of, 206, 207, 208; private equity and, 245–6, 247 Lewis, Jemima, 282, 287 Lewis, Joe, 12 libel laws, 332–3, 348–9 Liberal Democrats, xi, 11, 98, 141, 343, 360–1, 368; general election (2010) and, 97, 142, 179, 271, 390 libertarianism, 234 Likierman, Sir Andrew, 180 limited liability (introduced 1855), 353–4, 363 Lind, Allan, 85 Lindert, Peter, 280–1 Lipsey, Richard, 108, 263 Lisbon earthquake (1755), 54 Lisbon Treaty Constitution, 328 literacy and numeracy, 20–1 livestock fairs, pre-twentieth-century, 90 Lloyds Bank, 176, 178, 186, 202, 204, 251, 259 Lo, Andrew, 195 loan sharks, illegal, 291 local government, 307, 347–8 Locke, John, 54–5, 59 London School of Economics (LSE), 246 London Stock Exchange, 90, 162 London Underground, financing of, 336, 389 lone parent families, 292 Long Term Capital Management (LTCM), 169–70, 183, 193, 194, 200–1 long-term incentive plans (LTIPs), 6 Loomes, Graham, 59 luck, 23, 26–7, 38, 39, 40, 41, 67, 68, 69–77, 222, 273, 393–4; diplomacy/international relations and, 385–6; disadvantaged children and, 74–5, 83, 288–90; executive pay and, 138; taxation and, 73–4, 75, 78, 303 Luxembourg, 138 MacDonald, Ramsey, 315 Machiavelli, Niccolo, 62 Machin, Steve, 283–4 Macmillan Committee into City (1931), 179 Madoff, Bernie, 7 mafia, Italian, 101, 104–5 Major, John, 138, 180, 279, 334 Malaysia, 168 malls, out-of-town, 143 Mandelbrot, Benoit, 194, 195 Mandelson, Peter, 21, 24, 142, 148, 220 manufacturing sector, decline of, 5, 8, 219, 272, 292, 341, 363 Manza, Jeff, 281, 282 Marconi, 142–3 market fundamentalism, 9–19, 32–3, 40–2, 366; belief in efficiency of markets, 188–9, 190, 193, 194, 235–9, 366; coalition government (from May 2010) and, 370; collapse of, 3–4, 7–9, 19, 20, 219–20, 235, 392; Conservative Party and, 5, 17, 138, 147, 160, 161; domination of, 5–6, 14, 16–17, 163, 364–5, 387–90; likely resurgence of, 5, 8; New Labour and, x–xi, 5, 19, 144–9, 388, 389–90; post-communist fiasco in Russia, 135; rejection of fiscal policy, 224–5, 364–5, 367 mark-to-market accounting convention, 175 Marland, Lord Jonathan, 179 Marquand, David, 328 Marsh, Jodie, 64, 65 Marx, Karl, 56–8, 121–2 Maslow’s hierarchy of needs, 232, 274–5 mass production, 109, 134, 182 Masters, Blythe, 196 mathematical models (‘quants’), 105, 149, 151, 152, 165, 169, 188, 190–6, 203; extensions and elaborations, 194; Gaussian distribution, 190–1, 194; JP Morgan and, 195–6 Matthewson, Sir George (former chair of RBS), 25 Maude, Francis, 180 Mayhew, Henry, 285–6 McCartney, Paul, 247 McGoldrick, Mark, 174 McKinsey Global Institute, 253, 358–9, 360, 363 McQueen, Alexander, 143 media, mainstream, 6, 35, 312, 315–20, 321–32, 348–50; commoditisation of information, 318–20, 321; communications technology and, 316, 320, 349; domination of state by, 14, 16, 223–4, 338, 339, 343; fanatical anti-Europeanism, 15, 328, 378; foreign/tax exile ownership of, 218; hysterical tabloid campaigns, 10–11, 298, 319–20; ‘info-capitalism’, 317–18, 327, 328, 342; lauding of celebrity, 281, 314; modern 24/7 news agenda, 13, 224, 321, 343; regional newspapers, 331; as setter of agenda/narrative, 327–31, 342; television news, 330–1; undermining of democracy, 315–16, 317–18, 321–9, 333, 350; urgent need for reform, 35, 218, 344, 348–50, 391; view of poverty as deserved, 25, 53, 83, 281, 286; weakness of foreign coverage, 322, 323, 330 Mencken, H.L., 311 mergers and takeovers, 8, 21, 33, 92, 245, 251, 258, 259, 388 Merkel, Angela, 381–2 Merrill Lynch, 150, 170, 175, 192 Merton, Robert, 169, 191 Meucci, Antonnio, 221 Mexico, 30, 385 Meyer, Christopher, 332 Michalek, Richard, 175 Microsoft, 71, 114, 136, 253, 254, 258–9 Milburn, Alan, 273 Miles, David, 186–7 Milgram, Stanley, 200 millennium bug, 319 Miller, David, 70, 76, 77 minimum wage, 142, 278 Minsky, Hyman, 183, 185 Mirror newspapers, 319, 329 Mlodinow, Leonard, 72–3 MMR vaccine, 327 mobile phones, 30, 134, 143, 229, 349 modernity, 54–5, 104 Mokyr, Joel, 112 monarchy, 15, 312, 336 Mondragon, 94 monetary policy, 154, 182, 184, 185, 208, 362, 367 monopolies, 74, 102, 103, 160, 314; history of, 104, 113, 124, 125–6, 130–4; in the media, 30, 317, 318, 331, 350; modern new wave of, 35, 135–6, 137–8, 201–2, 258–9; ‘oligarchs’, 30, 65, 104 Monopolies and Mergers Commission, 258, 318 Moody’s (credit-ratings agency), 151, 175 morality, 16–27, 37, 44–54, 70, 73; see also desert, due, concept of; fairness; proportionality; debt and, 351–4, 357, 360–1 Morgan, JP, 67 Morgan, Piers, 329 Morgan Stanley, 150 Mulas-Granados, Carlos, 367 Murdoch, James, 389 Murdoch, Rupert, 317–18, 320, 327 Murphy, Kevin, 62, 63 Murray, Jim ‘Mad Dog’, 321 Myners, Paul, 340 Nash bargaining solution, 60 National Audit Office, 340 National Child Development Study, 289–90 national ecosystem of innovation, 33–4, 65, 103, 206, 218, 221, 239–44, 255–9, 374; state facilitation of, 102, 219–22, 229–30, 233, 251–2, 258–66, 269–70, 392 National Health Service (NHS), 21, 27, 34, 92, 265, 277, 336, 371–2; popular support for, 75, 77, 283 national insurance system, 81, 277, 302 national strategy for neighbourhood renewal, 278 Navigation Acts, abolition of, 126 Neiman, Susan, 18–19 neo-conservatism, 17–18, 144–9, 387–90 network theory, 199–201, 202–4, 206; Pareto curve and, 201–2 New Economics Foundation, 62 New Industry New Jobs strategy, 21 New Labour: budget deficit and, 224, 335, 360, 368, 369; business friendly/promarket policies, x–xi, 139–40, 142, 145, 146–7, 162, 198–9, 382; City of London and, x–xi, 5, 19, 22, 142–3, 144–5, 355; decline of class-based politics, 341; failure to challenge elites, x–xi, 14, 22, 388, 389–90; general election (1992) and, 138, 140–1, 144, 148, 277; general election (2005) and, 97; general election (2010) and, 20, 271, 334, 374, 378; light-touch regulation and, 138, 145, 146–7, 162, 198–9; New Industry New Jobs strategy, 21; one-off tax on bank bonuses, 26, 179, 249; record in government, 10–11, 19, 20–2, 220, 276–80, 302, 306, 334–6, 366–7, 389–90; reforms to by ‘modernisers’, 141; responses to newspaper campaigns, 11 New York markets, 140, 152, 162; Asian and/or OPEC capital surpluses and, 169, 171, 354; London/New York axis, 149, 150–1, 157–8, 160, 188, 202 Newsweek, 174 Newton, Isaac, 31, 127, 190 NHS Direct, 372 Nicoli, Eric, 13 non-executive directors (NEDs), 249–50 Nordhaus, William, 260 Nordic countries, 262; Iceland, 7, 138; Norway, 281; Sweden, 264, 281 North, Douglas, 113, 116, 129–30 Northern Rock, 9, 156, 157, 158, 186, 187–8, 202, 204, 251, 340–1 Norton Publishing, 93 Nozick, Robert, 234, 235 nuclear non-proliferation, 226, 384, 394 Nussbaum, Martha, 79 Obama, Barack, 18, 183, 380, 382–3, 394–5 the Observer, 141, 294, 327 Office for Budget Responsibility, 360 Office of Fair Trading (OFT), 257, 258 OFSTED, 276 oil production, 322; BP Gulf of Mexico disaster (2010), 216–17, 392; finite stocks and, 230, 384; OPEC, 149, 161, 171; price increase (early 1970s), 161; in USA, 130, 131, 132 Olsen, Ken, 29 Olympics (2012), 114 open markets, 29, 30, 31, 40, 89, 92, 100–1, 366, 377, 379, 382, 384; see also ‘open-access societies’; as determinants of value, 51–2, 62; fairness and, 60–1, 89–91, 94–6; ‘reference prices’ and, 94–6 ‘open-access societies’, 134, 135, 258, 272, 273, 275, 276, 280–1, 394; Britain as ‘open-access society’ (to 1850), 124, 126–7; democracy and, 136, 314; Enlightenment and, 30–1, 314–15, 394; innovation and invention in, 109–13, 114, 116–17, 122–3, 126–7, 131, 136, 315; partial political opening in, 129–30; US New Freedom programme, 132–3 opium production, 102 options, 166, 188, 191 Orange County derivatives losses, 167 Organisation for Economic Co-operation and Development (OECD), 180, 337, 373 Orwell, George, 37 Osborne, George, 147, 208, 224, 245, 302, 338 Overend, Gurney and Co., 156–7 Oxbridge/top university entry, 293–4, 306 Oxford University, 261 Page, Scott, 204 Paine, Tom, 347 Pareto, Vilfredo, 201–2 Paribas, 152, 187 Parkinson, Lance-Bombardier Ben, 13 participation, political, 35, 86, 96, 99 Paulson, Henry, 177 Paulson, John, 103, 167–8 pay of executives and bankers, 3–4, 5, 6–7, 22, 66–7, 138, 387; bonuses, 6, 25–6, 41, 174–5, 176, 179, 208, 242, 249, 388; high levels/rises of, 6–7, 13, 25, 82–3, 94, 172–6, 216, 296, 387, 393; Peter Mandelson on, 24; post-crash/bail-outs, 176, 216; in private equity houses, 248; remuneration committees, 6, 82, 83, 176; shared capitalism and, 66, 93; spurious justifications for, 42, 78, 82–3, 94, 176, 216 pension, state, 81, 372, 373 pension funds, 240, 242 Pettis, Michael, 379–80 pharmaceutical industry, 219, 255, 263, 265, 267–8 Phelps, Edmund, 275 philanthropy and charitable giving, 13, 25, 280 Philippines, 168 Philippon, Thomas, 172–3 Philips Electronics, Royal, 256 Pimco, 177 piracy, 101–2 Plato, 39, 44 Player, Gary, 76 pluralist state/society, x, 35, 99, 113, 233, 331, 350, 394 Poland, 67, 254 political parties, 13–14, 340, 341, 345, 390; see also under entries for individual parties political system, British: see also democracy; centralised constitution, 14–15, 35, 217, 334; coalitions as a good thing, 345–6; decline of class-based politics, 341; devolving of power to Cardiff and Edinburgh, 15, 334; expenses scandal, 3, 14, 217, 313, 341; history of (to late nineteenth-century), 124–30; lack of departmental coordination, 335, 336, 337; long-term policy making and, 217; monarchy and, 15, 312, 336; politicians’ lack of experience outside politics, 338; required reforms of, 344–8; select committee system, 339–40; settlement (of 1689), 125; sovereignty and, 223, 346, 347, 378; urgent need for reform, 35, 36–7, 218, 344; voter-politician disengagement, 217–18, 310, 311, 313–14, 340 Pommerehne, Werner, 60 population levels, world, 36 Portsmouth Football Club, 352 Portugal, 108, 109, 121, 377 poverty, 278–9; child development and, 288–90; circumstantial causes of, 26, 283–4; Conservative Party and, 279; ‘deserving’/’undeserving’ poor, 276, 277–8, 280, 284, 297, 301; Enlightenment views on, 53, 55–6; need for asset ownership, 301–3, 304; political left and, 78–83; the poor viewed as a race apart, 285–7; as relative not absolute, 55, 84; Adam Smith on, 55, 84; structure of market economy and, 78–9, 83; view that the poor deserve to be poor, 25, 52–3, 80, 83, 281, 285–8, 297, 301, 387; worldwide, 383, 384 Power2010 website, 340–1 PR companies and media, 322, 323 Press Complaints Commission (PCC), 325, 327, 331–2, 348 preventative medicine, 371 Price, Lance, 328, 340 Price, Mark, 93 Prince, Chuck, 184 printing press, 109, 110–11 prisoners, early release of, 11 private-equity firms, 6, 28–9, 158, 172, 177, 179, 205, 244–9, 374 Procter & Gamble, 167, 255 productive entrepreneurship, 6, 22–3, 28, 29–30, 33, 61–2, 63, 78, 84, 136, 298; in British history (to 1850), 28, 124, 126–7, 129; due desert/fairness and, 102–3, 105–6, 112, 223, 272, 393; general-purpose technologies (GPTs) and, 107–11, 112, 117, 126–7, 134, 228–9, 256, 261, 384 property market: baby boomer generation and, 372–3; Barker Review, 185; boom in, 5, 143, 161, 183–4, 185–7, 221; bust (1989-91), 161, 163; buy-to-let market, 186; commercial property, 7, 356, 359, 363; demutualisation of building societies, 156, 186; deregulation (1971) and, 161; Japanese crunch (1989-92) and, 361–2; need for tax on profits from home ownership, 308–9, 373–4; property as national obsession, 187; residential mortgages, 7, 183–4, 186, 356, 359, 363; securitised loans based mortgages, 171, 186, 188; shadow banking system and, 171, 172; ‘subprime’ mortgages, 64, 152, 161, 186, 203 proportionality, 4, 24, 26, 35, 38, 39–40, 44–6, 51, 84, 218; see also desert, due, concept of; contributory/discretionary benefits and, 63; diplomacy/ international relations and, 385–6; job seeker’s allowance as transgression of, 81; left wing politics and, 80; luck and, 73–7, 273; policy responses to crash and, 215–16; poverty relief systems and, 80–1; profit and, 40, 388; types of entrepreneurship and, 61–2, 63 protectionism, 36, 358, 376–7, 378, 379, 382, 386 Prussia, 128 Public Accounts Committee, 340 Purnell, James, 338 quantitative easing, 176 Quayle, Dan, 177 race, disadvantage and, 290 railways, 9, 28, 105, 109–10, 126 Rand, Ayn, 145, 234 Rawls, John, 57, 58, 63, 73, 78 Reagan, Ronald, 135, 163 recession, xi, 3, 8, 9, 138, 153, 210, 223, 335; of 1979-81 period, 161; efficacy of fiscal policy, 367–8; VAT decrease (2009) and, 366–7 reciprocity, 43, 45, 82, 86, 90, 143, 271, 304, 382; see also desert, due, concept of; proportionality Reckitt Benckiser, 82–3 Regional Development Agencies, 21 regulation: see also Bank of England; Financial Services Authority (FSA); Bank of International Settlements (BIS), 169, 182; Basel system, 158, 160, 163, 169, 170–1, 196, 385; big as beautiful in global banking, 201–2; Big Bang (1986), 90, 162; by-passing of, 137, 187; capital requirements/ratios, 162–3, 170–1, 208; dismantling of post-war system, 149, 158, 159–63; economists’ doubts over deregulation, 163; example of China, 160; failure to prevent crash, 154, 197, 198–9; Glass-Steagall abolition (1999), 170, 202–3; light-touch, 5, 32, 138, 151, 162, 198–9; New Deal rules (1930s), 159, 162; in pharmaceutical industry, 267–8; as pro-business tool, 268–70; proposed Financial Policy Committee, 208; required reforms of, 267, 269–70, 376, 377, 384, 392; reserve requirements scrapped (1979), 208; task of banking authorities, 157; Top Runner programme in Japan, 269 Reinhart, Carmen, 214, 356 Repo 105 technique, 181 Reshef, Ariell, 172–3 Reuters, 322, 331 riches and wealth, 11–13, 272–3, 283–4, 387–8; see also pay of executives and bankers; the rich as deserving of their wealth, 25–6, 52, 278, 296–7 Rickards, James, 194 risk, 149, 158, 165, 298–302, 352–3; credit default swaps and, 151, 152, 166–8, 170, 171, 175, 176, 191, 203, 207; derivatives and see derivatives; distinction between uncertainty and, 189–90, 191, 192–3, 196–7; employment insurance concept, 298–9, 301, 374; management, 165, 170, 171, 189, 191–2, 193–4, 195–6, 202, 203, 210, 354; securitisation and, 32, 147, 165, 169, 171, 186, 188, 196; structured investment vehicles and, 151, 165, 169, 171, 188; value at risk (VaR), 171, 192, 195, 196 Risley, Todd, 289 Ritchie, Andrew, 103 Ritter, Scott, 329 Robinson, Sir Gerry, 295 Rogoff, Ken, 214, 356 rogue states, 36 Rolling Stones, 247 Rolls-Royce, 219, 231 Rome, classical, 45, 74, 108, 116 Roosevelt, Franklin D., 133, 300 Rothermere, Viscount, 327 Rousseau, Jean-Jacques, 56, 58, 112 Rousseau, Peter, 256 Rowling, J.K., 64, 65 Rowthorn, Robert, 292, 363 Royal Bank of Scotland (RBS), 25, 150, 152, 157, 173, 181, 199, 251, 259; collapse of, 7, 137, 150, 158, 175–6, 202, 203, 204; Sir Fred Goodwin and, 7, 150, 176, 340 Rubin, Robert, 174, 177, 183 rule of law, x, 4, 220, 235 Russell, Bertrand, 189 Russia, 127, 134–5, 169, 201, 354–5, 385; fall of communism, 135, 140; oligarchs, 30, 65, 135 Rwandan genocide, 71 Ryanair, 233 sailing ships, three-masted, 108 Sandbrook, Dominic, 22 Sands, Peter (CEO of Standard Chartered Bank), 26 Sarkozy, Nicolas, 51, 377 Sassoon, Sir James, 178 Scholes, Myron, 169, 191, 193 Schumpeter, Joseph, 62, 67, 111 science and technology: capitalist dynamism and, 27–8, 31, 112–13; digitalisation, 34, 231, 320, 349, 350; the Enlightenment and, 31, 108–9, 112–13, 116–17, 121, 126–7; general-purpose technologies (GPTs), 107–11, 112, 117, 126–7, 134, 228–9, 256, 261, 384; increased pace of advance, 228–9, 253, 297; nanotechnology, 232; New Labour improvements, 21; new opportunities and, 33–4, 228–9, 231–3; new technologies, 232, 233, 240; universities and, 261–5 Scotland, devolving of power to, 15, 334 Scott, James, 114–15 Scott Bader, 93 Scott Trust, 327 Second World War, 134, 313 Securities and Exchanges Commission, 151, 167–8 securitisation, 32, 147, 165, 169, 171, 186, 187, 196 self-determination, 85–6 self-employment, 86 self-interest, 59, 60, 78 Sen, Amartya, 51, 232, 275 service sector, 8, 291, 341, 355 shadow banking system, 148, 153, 157–8, 170, 171, 172, 187 Shakespeare, William, 39, 274, 351 shareholders, 156, 197, 216–17, 240–4, 250 Sher, George, 46, 50, 51 Sherman Act (USA, 1890), 133 Sherraden, Michael, 301 Shiller, Robert, 43, 298, 299 Shimer, Robert, 299 Shleifer, Andrei, 62, 63, 92 short selling, 103 Sicilian mafia, 101, 105 Simon, Herbert, 222 Simpson, George, 142–3 single mothers, 17, 53, 287 sixth form education, 306 Sky (broadcasting company), 30, 318, 330, 389 Skype, 253 Slim, Carlos, 30 Sloan School of Management, 195 Slumdog Millionaire, 283 Smith, Adam, 55, 84, 104, 112, 121, 122, 126, 145–6 Smith, John, 148 Snoddy, Ray, 322 Snow, John, 177 social capital, 88–9, 92 social class, 78, 130, 230, 304, 343, 388; childcare and, 278, 288–90; continued importance of, 271, 283–96; decline of class-based politics, 341; education and, 13, 17, 223, 264–5, 272–3, 274, 276, 292–5, 304, 308; historical development of, 56–8, 109, 115–16, 122, 123–5, 127–8, 199; New Labour and, 271, 277–9; working-class opinion, 16, 143 social investment, 10, 19, 20–1, 279, 280–1 social polarisation, 9–16, 34–5, 223, 271–4, 282–5, 286–97, 342; Conservative reforms (1979-97) and, 275–6; New Labour and, 277–9; private education and, 13, 223, 264–5, 272–3, 276, 283–4, 293–5, 304; required reforms for reduction of, 297–309 social security benefits, 277, 278, 299–301, 328; contributory, 63, 81, 283; flexicurity social system, 299–301, 304, 374; to immigrants, 81–2, 282, 283, 284; job seeker’s allowance, 81, 281, 298, 301; New Labour and ‘undeserving’ claimants, 143, 277–8; non-contributory, 63, 79, 81, 82; targeting of/two-tier system, 277, 281 socialism, 22, 32, 38, 75, 138, 144, 145, 394 Soham murder case, 10, 339 Solomon Brothers, 173 Sony, 254–5 Soros, George, 166 Sorrell, Martin, 349 Soskice, David, 342–3 South Korea, 168, 358–9 South Sea Bubble, 125–6 Spain, 123–4, 207, 358–9, 371, 377 Spamann, Holger, 198 special purpose vehicles, 181 Spitzer, Matthew, 60 sport, cheating in, 23 stakeholder capitalism, x, 148–9 Standard Oil, 130–1, 132 state, British: anti-statism, 20, 22, 233–4, 235, 311; big finance’s penetration of, 176, 178–80; ‘choice architecture’ and, 238, 252; desired level of involvement, 234–5; domination of by media, 14, 16, 221, 338, 339, 343; facilitation of fairness, ix–x, 391–2, 394–5; investment in knowledge, 28, 31, 40, 220, 235, 261, 265; need for government as employer of last resort, 300; need for hybrid financial system, 244, 249–52; need for intervention in markets, 219–22, 229–30, 235–9, 252, 392; need for reshaping of, 34; pluralism, x, 35, 99, 113, 233, 331, 350, 394; public ownership, 32, 240; target-setting in, 91–2; threats to civil liberty and, 340 steam engine, 110, 126 Steinmueller, W.

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

Roy proposed maximizing the return above some fixed level of a “disastrous” (minimum) return, relative to the amount of risk as measured by the standard deviation. His formula for portfolio variance also included covariance terms. However, he allowed positive or negative investments in his portfolio, while Markowitz, in contrast, required nonnegative investments (i.e., no short selling). In another difference, Markowitz allowed investors to choose among any of the efficient portfolios, while Roy recommended one specific portfolio.65 In pondering why he received a Nobel Prize and Roy did not share in it, Markowitz speculated that Roy’s lack of visibility with the Nobel committee caused this oversight.

…

By 1984, the CBOE was second only to the New York Stock Exchange in terms of the trading value of financial assets.61 Today the CBOE is the largest U.S. options exchange, offering options on individual equities as well as indexes such as the S&P 500, the most active U.S. index option.62 Many of the assumptions in the Black-Scholes model, such as zero trading costs and no restrictions on short selling, were originally unrealistic, but the world was starting to change, and commissions were soon about to dramatically fall. The Black-Scholes model had an almost immediate impact, hitting the emerging options market in its technological sweet spot. The model helped the exchange to overcome the stigma of options trading as gambling by legitimizing the practice as one related to efficient pricing and hedging.

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

Meanwhile, in the City of London, other forms of excitement floated freely: coffeehouses proliferated in Exchange Alley, serving as betting parlors and stock exchanges, dealing in rumors, libels, and stray bits of military intelligence (battles could be bet upon). New financial practices—options trading, short selling—involved placing bets on whether certain asset values would rise or fall by a certain future date. Speculative “projectors” relied on an excited public imagination to endow their projects with dramatically increasing value; if the excitement subsided or grew fearful, the project’s value fell. The spread of speculative investment detached value from any material foundations and made it seem as much a product of imagination as of calculation.

…

Paper began to displace gold and silver as the chief medium of exchange—not only banknotes but shares in the capital stock of corporations that were themselves traded on what became known as the stock exchange. Signifiers of value were becoming less substantial, more susceptible to gusts of subjective feeling. TRADING IN THE AIR: THE FANTASIES OF FINANCE When it came to immaterial transactions, the Dutch showed the way: they were pioneers in short selling and options trading. In 1722, a commercial writer described conditions in Amsterdam, where “one very often trades several sorts of merchandise in the air, whether by selling what one does not possess, or buying what one has no intention to accept.” Trading “in the air”—betting on what one imagined an asset price would be at some future date—had by that time also become a way of life in the City of London.

China's Future
by David Shambaugh
Published 11 Mar 2016

To be certain, stock markets are very different from national economies, but they are also illustrative. In response to the unprecedented freefall, the government swiftly intervened by loaning $42 billion to twenty-one brokerage firms to buy stock, announced a $40 billion economic stimulus plan, ordered a halt to short selling and told half of the listed companies to stop trading of their shares, prohibited controlling shareholders and company board members from selling any shares for six months, and freezing all IPOs for six months. Altogether, the government spent at least 1 trillion yuan ($156 billion) to buy up shares in an attempt to stabilize stock prices and the market.19 A few weeks later, China’s government surprised the world and shook global markets by announcing an abrupt 4 percent depreciation in the value of its currency, the renminbi.

The Gone Fishin' Portfolio: Get Wise, Get Wealthy...and Get on With Your Life
by Alexander Green
Published 15 Sep 2008

Sometimes these price swings are triggered by a change in the company’s fundamentals. But a company’s daily share price can rise or fall for reasons that have nothing to do with the outlook for the company, or even the economy. Individual stock prices can be pushed around, for example, by rumors, official buy or sell recommendations by major wire houses, short selling, computerized technical strategies, tax selling, good or bad publicity, insider transactions, fads, takeover speculation, or bad news elsewhere in the sector. Short-term momentum traders often pile on too, creating even more havoc. For short-term traders, these are issues that must be understood and dealt with.

Corporate Finance: Theory and Practice
by Pierre Vernimmen , Pascal Quiry , Maurizio Dallocchio , Yann le Fur and Antonio Salvi
Published 16 Oct 2017

Yes, because the substantial discount provides a cushion against a sharp drop in the market price and because the banks were unwilling to get caught up in a process that would have led to them guaranteeing a price close to the market price. Arbitrage will take place: some investors will buy rights and short sell shares. This short sell will be repaid with the shares subscribed by the use of the rights. The lack of market efficiency is usually explained by the low liquidity of rights. Because it leads to a dilution of control. Exercises A detailed Excel version of the solutions is available at www.vernimmen.com.

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So we can say: When investors start to worry about the ability of the company to refinance in the near future, the value of the ALRG increases, pushing down the value of equity. And the phenomenon can pick up speed if the current lenders try and hedge their risks by selling short the firm’s shares, hoping to gain on this short-selling what they will lose as a result of the decline in the value of their debt. When the firm is able to find refinancing for its debt, for example through a share issue, we see in some cases (Lafarge in 2009) an increase in the share price, which contradicts what we have seen up to now. On the one hand, the value of the share is negatively impacted by the transfer of value to the creditors, but on the other hand, it benefits fully from the disappearance of the ALRG.

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Investing at a fair price, but in a much more risky venture. No, only the lack of anticipation. No, better for the shareholder, better for the shareholder, better for the shareholder. Fundamentally no, but the problem is considerably reduced. Options. Companies in distressed situations close to bankruptcy. Negative as this leads them to short sell the stock. Exercises A detailed Excel version of the solutions is available at www.vernimmen.com. The table is consistent. The higher the strike, the lower the value of the option, the longer the maturity, the higher the price of the option. The shares can be compared to options on the assets (i.e. the Uninet shares).

Quantitative Trading: How to Build Your Own Algorithmic Trading Business
by Ernie Chan
Published 17 Nov 2008

Otherwise, they are randomwalking, and trading will be futile. If you believe that prices are mean reverting and that they are currently low relative to some reference price, you should buy now and plan to sell higher later. However, if you believe the prices are trending and that they are currently low, you should (short) sell now and plan to buy at an even lower price later. The opposite is true if you believe prices are high. Academic research has indicated that stock prices are on average very close to random walking. However, this does not mean that under certain special conditions, they cannot exhibit some degree of mean reversion or trending behavior.

The Euro and the Battle of Ideas
by Markus K. Brunnermeier , Harold James and Jean-Pierre Landau
Published 3 Aug 2016

REGULATION, FINANCIAL DOMINANCE, AND A SECOND GAME OF CHICKEN The interpretation of the crisis as fundamentally a problem of inadequately regulated financial markets produced new regulatory initiatives. The German 2008 risk limitation law (Riskobegrenzungsgesetz) forced disclosure of investors taking over a 10 percent stake in publicly quoted companies. Temporary short-selling bans were used to stabilize financial markets, although they may have contributed to a longer-term and deeper loss of confidence. In 2012, France and Germany introduced—after a long debate in which the measure was extensively supported by politicians, churches, and intellectuals—a financial transactions tax.

…

There is one equilibrium in which investors believe no exit will occur and a Greek euro has the same value as a German euro. But there is also another equilibrium in which doubts about the homogeneity of the euro area induces speculators to bet on an exit. When the exit risk starts to materialize, prudent investors hedge this redenomination/exit risk, leading them to short sell Greek euros and buy German ones, thereby contributing to the likelihood of the exit. As long as both euros trade one-for-one, the cost of such a trade is only the interest rate differential—earning the low German interest rate and forgoing the higher Greek interest rate. Ultimately, however, the exit equilibrium might prevail.

Bernie Madoff, the Wizard of Lies: Inside the Infamous $65 Billion Swindle
by Diana B. Henriques
Published 1 Aug 2011

O’Malley, “Picking Your Battles,” Journal of Texas Consumer Law [Jan. 24, 2009].) 28 its worst weekly loss in more than a decade: Brooks, Go-Go Years, pp. 56–58. 28 “the hot-issue boys, the penny-stock plungers”: Ibid., pp. 57–58. 28 “I realized I never should have sold them those shares”: First BLM Interview. 28 He simply erased those losses from his clients’ accounts: Ibid. 28 “I felt obligated to buy back my clients’ positions”: Letter from BLM to author, Oct. 3, 2010. 29 “a large amount to me in those days”: Ibid. In 2009 dollars, Madoff owed his father-in-law more than $200,000. 30 high-risk “short sales”: In its orthodox form, short-selling is the practice of borrowing shares of stock (specifically, ones you think are going to decline in price) and selling them. If the price falls as you anticipated, you can buy cheaper shares to replace the ones you borrowed and pocket the difference as your profit. If the price goes up, you wind up buying more expensive shares to replace the borrowed ones and you incur potentially open-ended losses.

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Without the stock-borrowing fee, the potential profit was greater. But without an assured supply of stock to cover the borrowed shares, the risks were even higher. A short-seller might find that there simply are no shares to be had except at an astronomical price—a ruinous situation known as a short squeeze. Another form of short-selling Madoff said he frequently employed was “shorting against the box.” In this strategy, a trader shorts the shares of a stock he himself already owns. His holdings protect him against a short squeeze if the price goes up; if the price goes down, his short sale locks in his accrued profits without his actually having to sell the shares, which could have tax consequences.

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

Both Republican George Bush II and Democrat Barack Obama oversaw a titanic bailout. Congress authorized the Troubled Asset Relief Program (TARP), $700 billion to mop up the various toxic assets produced and consumed by the financial sector. Cox, free market deregulator circa 2004, turned statist in 2008 and temporarily banned short selling of 799 different financial stocks.20 The SEC’s press release opined that short bets against financial stocks contributed to “price declines in the securities of financial institutions unrelated to true price valuation.”21 Of course, the whole logic of free market theory is that the market knows best and gets to set its own price.

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For an interesting narrative history, see “Money, Power and Wall Street.” PBS. Frontline, www.pbs.org/wgbh/frontline/film/money-power-wall-street/transcript/. 18. Labaton. 19. Nakamoto, Michiyo, and David Wighton. “Citigroup Chief Stays Bullish on Buy-outs.” Financial Times, 9 July 2007. 20. US Securities and Exchange Commission. “SEC Halts Short Selling of Financial Stocks to Protect Investors and Markets,” 19 Sept. 2008, www.sec.gov/news/press/2008/2008-211.htm. 21. Ibid. 22. United States Census. Statistical Abstract of the United States: 2012. Internet preamble, www.census.gov/library/publications/2011/compendia/statab/131ed.html; Samuelson, Robert J.

The Billionaire's Apprentice: The Rise of the Indian-American Elite and the Fall of the Galleon Hedge Fund
by Anita Raghavan
Published 4 Jun 2013

Typically, investors like to keep their money in a fund that is beating the street, but in late August Raj Rajaratnam got back half his cash after his brother distributed the funds to investors. UBS first noticed the fund’s heady success after it executed a trade on July 26 in the stock of Arris Group, selling “short” $1.4 million worth of shares, the maximum allowable position in the friends and family fund. Short selling, a sign an investor is bearish about a stock, is a method of trading in which an individual sells borrowed shares at one price on the hope of buying back the stock later at a lower price and repaying the loan with the cheaper shares. A profit is made when the borrowed stock is replaced with less expensive shares.

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Invariably because of their prolific trading, hedge funds like Galleon often cropped up on regulators’ radars. The probe consumed a lot of time and resources, but all the investigating had not amounted to much. In 2005, Rajaratnam paid a fine of $2 million to settle an SEC case over the alleged improper short selling of seventeen stocks just before the companies sold additional shares. By the time the Sedna investigation started heating up in the fall of 2006, all was quiet on the regulatory front at Galleon and business was thriving. In late 2006, Galleon moved into swanky new offices at 590 Madison Avenue.

The Vanishing Face of Gaia: A Final Warning
by James E. Lovelock
Published 1 Jan 2009

As confident as Kahn, our politicians now talk with conviction about a world in 2050 fit for 8 billion people living on a 2°C hotter Earth with the temperature stabilized and emissions regulated. I wonder if an Intergovernmental Panel on Economic Change will be as sanguine about 2050. We deplore the clever manipulators who ‘trash and cash’ by short‐selling a bank, but praise governments who provide subsidies for the snake‐oil remedies for climate ills and easy money for the firms that sell them. We still seem to think that by mid century we will enjoy a well‐run and comfortable world under human management and stewardship. In the 1960s we were wholly unaware that we inhabit a live planet whose needs are in conflict with our own.

The Ethical Algorithm: The Science of Socially Aware Algorithm Design
by Michael Kearns and Aaron Roth
Published 3 Oct 2019

Amusing, but not terribly surprising—if the sender had merely flipped a coin and guessed, he would have been right about the direction of the stock half the time. The next day, you get another email from the same person. It tells you that today LYFT is going to end the day down, and you should short-sell it. Of course, you don’t—but you take note. And at the end of the day, you are amused to find that again the sender was right, and LYFT was down more than 5 percent. The next day you get another email saying LYFT will go down again. The next day, yet another—LYFT will end the day up. This goes on for ten days, and every day the sender correctly predicts the direction of the stock.

Great American Railroad Journeys
by Michael Portillo
Published 26 Jan 2017

DASTARDLY DREW Despite its uncertain history, the line still seemed an attractive investment to steamboat owner and Wall Street speculator Daniel Drew. He won a seat on the board after threatening to undercut the Erie on freight rates. From the inside, he plotted to take control, loaning the company money which it could not repay. Then he began manipulating shares in order to line his own pockets. Today, the methods he used, like short-selling stocks and insider trading, would be unlawful. At the time, there was little to stop rampant speculation. Vanderbilt was among many who were horrified at the religiously devout Drew’s antics, but he knew Drew of old, from when the pair both invested in steamships, and inexplicably maintained a soft spot for him.

Money and Government: The Past and Future of Economics
by Robert Skidelsky
Published 13 Nov 2018

The underlying bonds (against whose default the CDS provided insurance or on whose default the CDS permitted bets to be taken) were a small fraction of that $60 trillion.’34 In other words, the majority of CDS derivatives were bought to place bets, not for insurance purposes, and this made the financial 324 w h at wa s w rong w i t h t h e b a n k s? market very unstable. It is also an example of the increase in intrafinancial intensity during the run-up to the crisis – the growth in trading activities between financial institutions greatly exceeded that of interaction with the real economy. CDSs removed a large part of the risk from short-selling – betting on a stock going down in value – because they provided insurance against the bet turning out wrong. They thus encouraged speculation on the short-side. But while buying a CDS contract carried limited risk but almost unlimited profit potential, ‘selling CDS offers limited profits but practically unlimited risks’.35 In the run-up to the crisis, the banks made the crucial mistake of ruling out the possibility of the insurer having no money to pay the claims.

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B., 352 Say’s Law, 19–20, 36, 96, 110, 190, 235 demolition of by Keynes, 119 and under-consumption theory, 293–4 Schauble, Wolfgang, 225 Scheidel, Walter, The Great Leveler (2017), 289 Schiller, Karl, 153 Schlesinger Jr, Arthur, 15, 16 Schumpeter, Joseph, 11, 14, 71, 104, 139, 350 Schwartz, Anna, 105, 179, 256, 276 sciences, natural, 8, 10, 11–12, 201, 388 ‘secular stagnation’, 4, 149, 151, 304, 340, 348, 370 securitization, 5, 307–8, 309, 322–6, 327, 341, 362 and fraud, 328 role of CR As, 326–7, 329–30 theoretical mistake behind, 328 Senior, Nassau, 64 Shakespeare, William Hamlet, 29 The Merchant of Venice, 30–31 Shiller, Robert, 225, 388 short-selling, 325 silver, 23, 24, 25, 28, 37 and bimetallism, 50, 52 British recoinage debate (1690s), 40, 41–3 from mid-sixteenth century South America, 33, 35 Skidelsky, Robert, 226 ‘new macroeconomic constitution’ proposals, 351–7, 357, 359–61, 371 Smith, Adam, xviii on chartalist theory, 26 and free trade, 38, 76, 81–2, 377 and growth of wealth, 74, 82–3 ‘invisible hand’ metaphor, 10, 312, 385 and mercantilism, 78, 79, 81, 82 metallist theory of money, 23–4, 25, 27, 28, 38–9, 44 and money supply, 38, 47 and primacy of consumption, 81–2 public goods argument, 82, 93, 123, 352, 353, 356–7 488 i n de x on state’s four duties, 82 Wealth of Nations (1776), 15, 82, 83, 288 Snowden, Philip, 112, 113, 142, 224 social insurance schemes, 15 ‘social market economy’, 140 sociological economics, 386–90 Solon, 30 Solow growth model, 293 solvency concept, 316–17 Soviet Union, 149, 374 Spain, 242, 328, 333, 341 sixteenth-century influx of silver from South America, 33, 35 Special Purpose Vehicles (SPVs), 325–6, 367 Sputnik satellite launch (1957), 149 Standard &Poor’s (CR A), 329 state, economic role of AROM (activist real output management), 139–40 Brown constitution, 221–3, 357 chartalist theory, 23, 25–6 and class power, 14 Congdon’s rejection of fiscal policy, 280, 285–7 crisis in 1970s, 16 and debasing the coinage/printing of money, 28–9, 32, 41–2, 45–6 Friedman’s view, 177–83 and globalization, 350, 373 Hutchison’s classification of opinions, 349–50 impact of First World War, 95, 106–7 innovation, 353–4 in inter-war Britain, 106–17 Keynes’ view of future (1936), 354 Keynesian full employment phase (1945–60), 141–8 Keynesian golden age (1945– 1970s), 1–2, 7, 76, 139–62, 348 489 Keynesian revolution (1930s), 1–2, 9, 10, 15–16, 75, 98, 118–31, 348 Lloyd George’s coalition government, 107–8 Locke’s social contract theory, 41–2 mercantilist view, 9, 74, 75–6, 77–81, 380 ‘minimal state’ theory, 9, 29, 74–5, 76, 82–3, 85–7, 93, 106, 177, 184, 347, 385–6 minimized in pre-crash orthodoxy, 5, 9, 16–17, 76, 385–6 in neo-classical perfect markets, 292 New Right critiques in 1970s, 16 nineteenth-century Prussia, 92 ‘off-budget’ accounting, 108–9 origins of, 73–4 political implications of Keynesian policy, 129–31, 138–41 privatizing of state assets, 193, 198 ‘public choice’ theory, 198–9 public goods argument, 82, 93, 123, 352, 353, 356 public investment in new macroeconomic constitution, 352–7 responses to 2008 crash, 3, 217–18, 219–20, 221–36, 237–47 Smith and Ricardo’s view, 73, 74–5, 76, 81–5, 109, 110 social democratic state, 16, 149, 176, 198, 292, 293, 303–4, 348, 373–4 ‘stationary state’ of nineteenthcentury, 368–9 tradable public debt instruments, 43, 80–81 in traditional societies, 74 ‘Treasury View’, 108, 109–10, 112, 116, 194, 235 in tributary economies, 26 i n de x state, economic role of – (cont.)

Getting a Job in Hedge Funds: An Inside Look at How Funds Hire
by Adam Zoia and Aaron Finkel
Published 8 Feb 2008

Emerging Markets This strategy involves equity or fixed income investing in emerging markets around the world. As emerging markets have matured so too has investing in them. Whereas until recently most emerging markets funds were long only, some of these same funds may now incorporate the use of short selling, futures, or other derivative products with which to hedge their investments. Equity Strategies There are several types of hedge funds whose strategies focus on investing in equities. While some of these may use seemingly more traditional strategies, others are quite complex and require very specific skills.

Choose Yourself!
by James Altucher
Published 14 Sep 2013

The mutual fund says, “Excuse me, bank, can I please split that with you and we won’t tell anyone?” So mutual funds benefit by taking some of the interest when they lend the shares to the short seller. This is actually a pretty safe way to make money on Wall Street: to be in the business of lending shares. Should this type of lending be made illegal? No, of course not. Short selling has often been the way that smart investors have exposed scams like Enron and Worldcom by giving them financial incentives to do so. Is it abused? Yes, it is—like every other aspect of Wall Street. But if this is what one of the largest banks in the world is going to do with someone who has $800 million in the bank, then you really have to ask yourself: What are they currently doing to you?

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

By pyramiding meta-markets I mean the historical tendency for any given financial market to give rise to a higher-order market in lower-order financial instruments. In real social practices, all monies are promises to pay in the future. Thus financial specialists can create promises to pay promises to pay, and so on up to almost any level of complexity. Loans, liens, equities, bonds, all these are relatively low levels of pyramiding. Short-selling stock market shares, bundling mortgages for secondary resale markets, leveraged buyouts, mutual funds, hedge funds, and other complex trading schemes are higher-order markets built upon the instruments of exchange. There is in principle no upper limit to how many layers can be added. Very large sums can be generated at higher levels, although the conversion of these monies into low-level goods and services is problematic.

Empirical Market Microstructure: The Institutions, Economics and Econometrics of Securities Trading
by Joel Hasbrouck
Published 4 Jan 2007

Show that for T = 3 with s1 + s2 + s3 = 1 the optimal order sizes are s1 = 1 + 2λ1 λ3 λ1 λ1 (λ2 − 2λ3 ) ; s3 = − . ; s2 = λ2 (λ2 − 4λ3 ) λ2 − 4λ3 λ22 − 4λ2 λ3 Note that depending on how λt evolves, the optimal purchase may involve an initial sale (!). For example, when {λ1 = 2, λ2 = 1, λ3 = 1/2}, {s1 = −1, s2 = 0, s3 = 2}. The buyer is initially short selling (to drive the price down) and then purchasing to cover the short and establish the required position when price impact is low. Caution is warranted, however, because counterparties (and regulatory authorities) may view the intent of the initial sale as establishment of an “artificial” (i.e., “manipulative”) price. 157 158 EMPIRICAL MARKET MICROSTRUCTURE 15.2 Models of Order Placement The next analysis also deals with a purchase under a time constraint but with different emphasis.

Tough Sh*t: Life Advice From a Fat, Lazy Slob Who Did Good
by Kevin Smith
Published 20 Mar 2012

Getting stoned while alone in the home we owned on the Fourth of July not only sounded sexy and naughty, I imagined it’d have the same disconnected, vaguely patriotic feeling I got whenever I watched Saving Private Ryan. So five years into our marriage, Schwalbach and I rolled really bad joints and set about getting stoned together in our empty house. To say it was glorious, dear reader, is to short-sell an orgasm as feeling about as good as a stretching yawn: There’s just no comparison. We smoked and had amazing conversations full of humor, love, and truth. We called a cab and ate tons of cotton candy at the Simon L.A. restaurant, making out under the stars on the outdoor couches like we were sophomores at the lunch table who’d spent last period apart.

Kicking Awaythe Ladder
by Ha-Joon Chang
Published 4 Sep 2000

In 1734, the Parliament passed Barnard's Act, which tried to limit the more speculative end of the securities market by banning options, prohibiting parties from settling contracts by paying price differentials and stipulating that stocks actually had to be possessed if the contracts that had led to their sales were to be upheld in a court of law. However, this law remained ineffective and was finally repealed in 1860.109 Subsequently, except for the 1867 Banking Companies (Shares) Act forbidding the short-selling of bank shares - which in any case remained ineffective - there were few attempts at securities regulation until 1939, when the Prevention of Fraud (Investments) Act was legislated. The act introduced a licensing system for individuals and companies dealing with securities by the Board of Trade, which had the power to revoke, or to refuse the renewal of, a licence if the party gave false or inadequate information in their application for it or when trading.

Smart Money: How High-Stakes Financial Innovation Is Reshaping Our WorldÑFor the Better
by Andrew Palmer
Published 13 Apr 2015

The end of the structured investment vehicle (SIV), an off-balance-sheet instrument invented to take advantage of loopholes in bank regulations, is not much lamented. The motives behind new products are not always spotless. I remember being with a very senior Lehman banker in London just a few weeks before his employer went bankrupt in September 2008. As we were discussing the latest restrictions imposed against short-selling the shares in banks, a measure designed to protect his own industry, he jerked his head across Canary Wharf in the direction of the regulator’s office. “Whatever rule those fucking idiots come up with on Monday, I’ll have found a thousand ways around it by Friday,” he said. (Not if you’ve gone bankrupt, you won’t.)

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

For example, suppose an investor with $100 of equity aims to have a 100 percent short position in the S&P 500. If the market falls by 2 percent, the investor makes $2 in profit and now has $102 of equity. However, his existing short position is only worth $98. To maintain a 100 percent short position, he needs to short-sell an additional $4. If instead the market moves against him and rises by 2 percent, his equity falls to $98 and his outstanding position rises to $102. In order to maintain a short position equal to his equity, he needs to reduce his short position by purchasing $4 in stock. These examples demonstrate that if a speculator is levered or maintains a short position, he needs to buy when the asset price rises and sell when the asset price falls in order to rebalance and maintain a constant level of leverage.

The Behavioral Investor
by Daniel Crosby
Published 15 Feb 2018

A great deal of work has gone into trying to replicate the results of Smith’s study and to determine whether the findings are robust to various markets and market participants. “Experienced” traders (i.e., those who have played the game before) can learn to extinguish bubbles with repeated practice, but form the bubbles once again as soon as the valuation numbers change. The simulated market has been run allowing short selling, using different kinds of markets, with a variety of rules. In all conditions, bubbles occur. A Harvard study sought to replicate Smith’s work with one important departure: there was no ability to speculate and no “greater fool” to whom inflated assets could be passed on. Even in this kid-gloved simulation, you guessed it, bubbles and crashes occur.

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

Hell, maybe I should pull out my collection of BUM sweatshirts which, despite Caroline’s protests, I’ve held onto since the early ‘90s. The markets close. The third worse day ever. The Dow is down 3,000 points, -12% on the day, the worst one-day drop since 1987. Spain and Italy just banned short selling. Economists are busy slashing their estimates for growth. They’re quickly revising their math downward, but they’re all guesses at this point. Boil it down to some pretty simple math and it looks like this: US GDP is $21.7 trillion, and consumption is about $15 trillion of that. A two-month decline of 20% in each, a pretty conservative estimate, would amount to $720 billion and $500 billion.

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

Some of the bubbles of recent years, particularly the housing bubble, were detected by enormous numbers of people well in advance. And tests like Shiller’s P/E ratio have been quite reliable indicators of bubbles in the past. We could try to legislate our way out of the problem, but that can get tricky. If greater regulation might be called for in some cases, constraints on short-selling—which make it harder to pop bubbles—are almost certainly counter-productive. What’s clear, however, is that we’ll never detect a bubble if we start from the presumption that markets are infallible and the price is always right. Markets cover up some of our warts and balance out some of our flaws.

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September 11, 2001, terrorist attacks, 247–48, 247, 248, 412, 417, 419, 421, 425–28, 429, 431–32, 436, 438, 444, 449, 510–11 as ambitious, 422–23 as unpredicted, 10–11 service sector, 189 Shakespeare, William, 4–5, 418, 460 Shannon, Claude, 265–66 Sharma, Deven, 22, 25 Shaw, Brian, 237 Shiller, Robert, 22, 30, 31, 32, 347–48, 349, 353, 354, 369, 500 shopping malls, 228, 440 short-selling, 355, 360, 361, 501 shortstops, 446, 447 signals, 175, 186 in climatology, 371–73 competing, 416–18, 417 noise vs., 8, 13, 17, 60, 81, 133, 145, 154, 162, 163, 173, 185, 196, 285–86, 295, 327, 340, 371–73, 388–89, 390–91, 404, 448, 451, 453 in predictive models, 388–89 in stock market, 368 of terrorism, 438, 442–45 similarity scores, 84–85 sine wave, 416–17 Singapore, 210 SIR model, 220–21, 221, 223, 225, 389 skill, 79, 312 luck vs., 321–23, 322, 338–39 Skynet, 290 Slate, 353 slowplaying, 304 smallpox, 214, 229, 436, 485 Smith, Adam, 332 Smith, Ozzie, 446 snow, 391, 399, 473 Snowpocalypse, 474 Soaring Eagle Indian Casino, 296–97 Solar Cycle 24, 392, 393 Solow, Robert, 7 Sornette, Didier, 368, 369 Soros, George, 356, 370 South Korea, 372 Soviet Union, 467 disintegration of, 50–51, 66 economy of, 51–52 Spain, 210 Spanish flu, 205, 211, 214, 224, 229 Spanish Inquisition, 4 sports, 63 see also baseball, basketball Stairs, Matt, 92 Standard & Poor’s (S&P), 1, 19, 20–21, 22, 24, 25–26, 41, 43, 45, 463 see also S&P 500 standard deviation, 322 staph infections, 227 statheads, 87–88 biases of, 91–93 scouts vs., 86, 88, 128 statistical significance test, 251, 253, 256, 372n statistics, context and, 79, 84, 91, 100–102, 105, 234, 240 Stenson, Dernell, 85 Stephen, Zackary “ZakS,” 292–93 stereotypes, 298–99 Stiglitz, Joseph, 363 stimulus package, 14, 40, 184, 194, 379, 398, 466–67 stock market, 19, 185–86, 253, 256, 329–70 Bayesian reasoning and, 259–60 competition in, 313, 352, 364 correlations in price movements in, 358 crashes in, 354–56, 354 dynamic group behavior in, 335 fast track in, 368 forecasting service for, 337–38 future returns of, 330–31, 332–33 lack of predictability in, 337–38, 342, 343–46, 359, 364–66 long run vs. short run in, 404 as 90 percent rational, 367 noise in, 362–64 overconfidence in, 359–60, 367 P/E (price-to-earnings) ratio of, 348, 349, 350, 354, 365, 369 public sentiment on, 364–65, 365 signal track in, 368 technical analysis of, 339–40, 341 velocity and volume of trading on, 329–30, 330, 336 see also efficient-market hypothesis stocks, see stock market StormPulse.com, 471–72 strategy, tactics vs., 273–76, 278, 284 stress, effect on decision making, 97–98, 449 strikeouts, 79–80, 91 strike zone, 102 strong efficient-market hypothesis, 341–42 structural uncertainty, 393 structure-finance ratings, 24 subduction zone, 143–44 subjectivity, 14, 64, 72–73, 100, 252, 253, 255, 258-59, 288, 313, 403, 453 subprime mortgages, 27, 33, 464 suburbs, 31 suckers, in gambling, 56, 237, 240, 317–18, 320 suicide attacks, 423–24, 424 see also September 11, 2001, terrorist attacks suited connectors, 301, 306 sulfur, 392, 399–400, 400, 401 Sulmona, Italy, 143, 145 Sumatra, Indonesia, 161, 171, 172 Summers, Larry, 37–38, 39, 40, 41, 466 sunspots, 392, 401 Super Bowl, 185, 371 superstition, 5 Super Tuesday, 336 surveillance, in credit ratings, 23–24 Survey of Professional Forecasters, 33, 179–83, 191, 197–98, 199, 200–201, 466–67, 480, 481, 482 Suzuki, Ichiro, 101 swine flu, 208, 209–12, 218–19, 224–25, 228–29 Sydney, Australia, 222 syphilis, 222, 222, 225 tactics, strategy vs., 273–76, 278, 284 Taleb, Nassim Nicholas, 368n tape, in credit ratings, 24 taxes, 481 Taylor, Brien, 92 technical analysis, 339–40 technological progress, 112, 243, 292–93, 410–11 technology, 1, 313 tectonic plates, 16, 144, 148, 173 Tehran, 147, 151–53 Tejada, Miguel, 99 telescope, 243 television pundits, 11, 47–50, 49, 73, 314, 448 hedgehogs as, 55 temperature records, 393–95, 394, 397–98, 403–4, 404, 405, 506 Tenet, George, 422, 424–25, 510 tennis, 496 Terminator series, 290n terrorism, 511–12 definition of, 428 depth vs. breadth problem in prevention of, 273 frequency vs. death toll of, 429–30, 430, 431, 432–33, 437, 439, 441, 442, 442 in Israel, 440–42 mathematics of, 425–32 see also September 11, 2001, terrorist attacks Tetlock, Philip E., 11, 51, 52–53, 56–57, 64, 67, 100, 157, 183, 443, 450, 452, 467 Texas, 464 Texas hold ’em, 298–302, 464 limit, 311, 322, 322, 324n no-limit, 300–308, 309–11, 315–16, 316, 318, 324n, 495 Texas Rangers, 89 Thailand, 209 Thaler, Richard, 361–62 theory, necessity of, 9, 197, 372-73 Thirty Years’ War, 4 This Time Is Different: Eight Centuries of Financial Folly (Reinhart and Rogoff), 39–40, 43 Thomas Aquinas, Saint, 112 Thomas J.

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

As much of the high-technology and telecom market fell, Enron could not buck the tide of falling stock prices indefinitely. Then, in early 2001, Fortune published a piece questioning how Enron made its money. This was the first serious criticism from a mainstream journal, the reporting largely based on research done by the hedge fund manager Jim Chanos, who specialized in short selling. Six months later, in August, Skilling resigned as CEO and a midlevel accountant, Sherron Watkins, wrote Ken Lay a letter pointing out that Fastow’s partnerships were about to sink the company. Over the preceding two years, the partnerships had hidden over $1 billion in losses through accounting gimmicks.

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securitization, see mortgage-backed securities self-interest, 2.1, 5.1, 7.1, 7.2, 12.1, 13.1, 14.1, 14.2, 15.1 Senate, U.S., 10.1, 11.1, 11.2, 14.1, 14.2, 16.1 September 11th attacks (2001) Servan-Schreiber, Jean-Jacques service sector, 3.1, 12.1 Setting Limits (Uhler), prl.1 Shah of Iran, Mohammad Reza Pahlavi, 6.1, 6.2, 9.1 Shakespeare, William, 2.1, 2.2 Shapiro, Irving shareholders, 4.1, 4.2, 4.3, 4.4, 4.5, 5.1, 5.2, 5.3, 8.1, 11.1, 12.1, 12.2, 12.3, 12.4, 12.5, 12.6, 13.1, 15.1, 16.1, 17.1, 17.2, 17.3, 17.4, 18.1, 19.1 Shearson Hayden Stone, 16.1, 17.1 Shearson Loeb Rhoades, 6.1, 16.1, 16.2, 19.1 Sherman, Steve Shiller, Robert, 14.1, 14.2, 17.1, 17.2 Shorenstein, Walter short selling, 5.1, 15.1, 15.2, 15.3, 15.4, 15.5, 19.1, 19.2, 19.3, 19.4, 19.5 Showtime, 8.1, 8.2 Shultz, George, 3.1, 3.2, 3.3, 3.4, 6.1, 6.2, 9.1 Siegel, Herb Siegel, Martin, 4.1, 4.2, 5.1, 5.2, 12.1, 13.1, 13.2 Silberstein, Ben Silberstein, Muriel Silicon Valley, 12.1, 17.1 silver, 1.1, 6.1, 15.1, 15.2 Simon, William, 3.1, 3.2, 3.3, 6.1, 6.2, 18.1 Simons, Henry, 2.1, 2.2, 2.3, 2.4, 2.5, 2.6 Simons, James Sinatra, Frank Sirower, Mark Siva-Jothy, Christian Six Crises (Nixon), 3.1 Skilling, Jeffrey, 17.1, 17.2, 17.3, 17.4, 17.5 Slater, Robert Smith, Adam, 1.1, 2.1, 5.1, 7.1 Smith, Howard K.

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

REALITY: In January 1980 the Board of the Commodities Exchange adopted a rule limiting trading in the surging silver market to “liquidation only.” That meant that silver investors could only sell their positions. The board that made the sudden decision included four members representing major short positions in the market. REALITY: In September 2008, the SEC, under pressure from the Treasury and the Fed, issued a ban on short-selling stock in 799 financial companies. Before long it added another couple hundred companies to the list. The ban was an attempt to prop up the market and interfered with the market’s function of price discovery in assessing very real toxic mortgage risks held by financial companies, risks that every investor would want known.

The Infinite Book: A Short Guide to the Boundless, Timeless and Endless
by John D. Barrow
Published 1 Aug 2005

Clearly, if time travel becomes routinely possible at no cost to the traveller, then the interest rates through history would need to be 0% or time travellers could use the banking and investment system as a perpetual money machine. $1 × (1 + 0.04)1000 = 108 million billion dollars !! Notice that negative rates of return are also inconsistent with no-cost time travel. Suppose an investment is worth $1 at first and then falls to 50 cents in value subsequently. Again, time travellers could build a money machine. They could short-sell their investment in the first period (when it is worth $1), teleport in time to the epoch when it is worth 50 cents and repurchase it. Alternatively, they could just buy it when it is worth 50 cents and travel back in time to sell when it is worth $1. Either way, time travellers earn a profit of 50 cents.

The New Sell and Sell Short: How to Take Profits, Cut Losses, and Benefit From Price Declines
by Alexander Elder
Published 1 Jan 2008

Buyers tend to grow skittish and hang back during severe drops. It is short-sellers, flush with profits, who step in to buy in order to cover and turn paper profits into real money. Their covering slows down the decline, and that’s when the bargain hunters step in. Next thing you know, a bottom is in place and the stock is rising again. Short-selling dampens excessive price swings and benefits the public. I do not want to imply that short-sellers are a bunch of social workers. We aren’t. But as the great economist Adam Smith showed two centuries ago, people in the free market help others by doing what is best for themselves. Bears help the markets, as long as there is no collusion between them—no “bear raids.”

23 Things They Don't Tell You About Capitalism
by Ha-Joon Chang
Published 1 Jan 2010

A taboo in polite circles until recently, the so-called Tobin Tax has recently been advocated by Gordon Brown, the former British prime minister. But the Tobin Tax is not the only way in which we can reduce the speed gap between finance and the real economy. Other means include making hostile takeovers difficult (thereby reducing the gains from speculative investment in stocks), banning short-selling (the practice of selling shares that you do not own today), increasing margin requirements (that is, the proportion of the money that has to be paid upfront when buying shares) or putting restrictions on cross-border capital movements, especially for developing countries. All this is not to say that the speed gap between finance and the real economy should be reduced to zero.

Nine Crises: Fifty Years of Covering the British Economy From Devaluation to Brexit
by William Keegan
Published 24 Jan 2019

Indeed, the suspension took place at 4 p.m., after Major had wasted hours in a vain attempt to request help from our Continental partners. The hedge fund king George Soros said he had made in excess of a million pounds in a matter of days by selling – technically known as ‘shorting the pound’. It was not just George Soros who called it right. ‘Short selling’ of sterling to the Bank of England was rife. There were many less-publicised operators than Soros. Selling of sterling was being conducted on a massive scale, not only by traders but also by bank and corporate treasurers and asset managers generally. In a world of deregulated capital markets, where the annual total of foreign exchange trading exceeds transactions to finance ordinary business by a multiple of some hundreds, a central bank is basically defenceless when the tide turns against it.

Mastering the Market Cycle: Getting the Odds on Your Side
by Howard Marks
Published 30 Sep 2018

Here’s a partial list: Government policies supported an expansion of home ownership—which by definition meant the inclusion of people who historically couldn’t afford to buy homes—at a time when home prices were soaring; The Fed pushed interest rates down, causing the demand for higher-yielding instruments such as structured/levered mortgage securities to increase; There was a rising trend among banks to make mortgage loans, package them and sell them onward (as opposed to retaining them); Decisions to lend, structure, assign credit ratings and invest were made on the basis of unquestioning extrapolation of low historic mortgage default rates; The above four points resulted in an increased eagerness to extend mortgage loans, with an accompanying decline in lending standards; Novel and untested mortgage backed securities were developed that promised high returns with low risk, something that has great appeal in non-skeptical times; Protective laws and regulations were relaxed, such as the Glass-Steagall Act (which prohibited the creation of financial conglomerates), the uptick rule (which prevented traders who had bet against stocks from forcing them down through non-stop short selling), and the rules that limited banks’ leverage, permitting it to nearly triple; Finally, the media ran articles stating that risk had been eliminated by the combination of: the adroit Fed, which could be counted on to inject stimulus whenever economic sluggishness developed, confidence that the excess liquidity flowing to China for its exports and to oil producers would never fail to be recycled back into our markets, buoying asset prices, and the new Wall Street innovations, which “sliced and diced” risk so finely, spread it so widely and placed it with those best suited to bear it.

The Greed Merchants: How the Investment Banks Exploited the System
by Philip Augar
Published 20 Apr 2005

As he told National City: ‘because of my abiding faith in the advice of your company I am today a pauper’.9 Pecora heard many similar stories and was not impressed by the banks’ explanations. He concluded that they had contributed to the crisis by marketing high risk investments to unsophisticated customers, gambling with clients’ deposits, charging excessive fees, favouritism, price manipulation and short selling. The public demanded action. High profile banking bosses such as Charles Mitchell of National City and Albert Wiggin of Chase resigned in disgrace. The new President, Franklin Roosevelt, introduced a series of laws to tighten up the regulation of the securities and banking industries. A strong national regulator, the Securities and Exchange Commission (SEC), was set up; commercial banking (loans and deposits) was separated from investment banking (securities underwriting and dealing); depositors’ funds were insured against bank failure; and investors were to be protected from unscrupulous salesmen.

The Great Tax Robbery: How Britain Became a Tax Haven for Fat Cats and Big Business
by Richard Brooks
Published 2 Jan 2014

When one national champion fell into highly geared foreign hands, the party’s tax spokesman David Gauke protested that ‘the current structure of our tax system appears to encourage the situation whereby a successful and profitable business like Manchester United becomes loaded down with debt as a consequence of a leveraged buy-out … This may be a tax efficient structure but it is difficult to see how this is good for the long term interests of the club, good for football or good for the country.’‌30 Once in government Gauke would, however, quickly U-turn on this one. Hedge of darkness If private equity grew up under the indulgent parenting of successive deregulating, tax-cutting governments, so did its equally spoilt cousin: the hedge fund industry that took full advantage of the 1990s explosion in new financial instruments including arbitrage, short-selling and any number of products ‘derivative’ of regular financial transactions, such as swaps and options. All could be executed at a pace that made the banks look leaden-footed, while late twentieth-century ‘light touch’ financial regulators gazed on approvingly. Offering returns even in falling markets – if far from consistently delivering them – this was a game that appealed even to once conservative investors like pension funds.

Finding Alphas: A Quantitative Approach to Building Trading Strategies
by Igor Tulchinsky
Published 30 Sep 2019

Some of their chief advantages for investors are: •• Exchange trading: Unlike mutual funds, which can be bought or sold only at the end of each trading day at their net asset value (NAV), ETFs experience price changes throughout the day and can be traded as long as the market is open. This allows active traders to implement intraday strategies or even exploit arbitrage opportunities. ETFs enjoy other stocklike features, such as short-selling, the use of limit orders and stop-loss orders, and buying on margin. •• Low costs: In general, ETFs incur lower costs (expense ratio < 1%) compared with traditional mutual funds (1–3%), benefiting all investors. For instance, SPY’s expense ratio is 0.09%, and those of some others, such as Schwab US Broad Market ETF (SCHB), are as low as 0.03%.

DIY Investor: How to Take Control of Your Investments & Plan for a Financially Secure Future
by Andy Bell
Published 12 Sep 2013

Funds investing in specialist sectors, such as Technology & Telecommunications and Property, fall into this category. So do funds defined by a particular investment process such as Absolute Return funds, which aim to achieve an above-zero return at all points in the investment cycle. Targeted Absolute Return funds are supposed to smooth out returns by using derivatives and short-selling strategies, although many have delivered dismal performances in recent years. Commercial property funds Commercial property is a sensible component of a well-diversified investment portfolio, and the easiest way to get exposure to it is through a commercial property fund. The fund manager buys commercial properties with leases on shops, offices and other buildings and the rent it receives is paid out to investors as income.

Built on a Lie: The Rise and Fall of Neil Woodford and the Fate of Middle England’s Money
by Owen Walker
Published 4 Mar 2021

Burford Capital, a business that financed litigation, was attacked in early August by US hedge-fund manager Carson Block, who accused the business of aggressive accounting. Block published an explosive research paper on the business, which sent its share price tumbling 57 per cent in one of the most devastating short-selling attacks the UK had seen. Woodford had been a long-time backer of Burford and took a £119 million paper hit on the fall. More bad news followed. Link, on the instructions of the Patient Capital board, continued reassessing the valuations on Woodford’s private holdings. Many of the companies had received sky-high appraisals from Link over the years, helped by advice given to it by Duff & Phelps, the independent consultants.

Heads I Win, Tails I Win
by Spencer Jakab
Published 21 Jun 2016

They go by names such as “liquid alternative,” “alternative income,” or “multiasset.” The fees are typically around 1.9 percent on average, according to Morningstar, or far higher even than actively managed mutual funds. Their underlying costs are often higher too for a variety of reasons, such as buying illiquid assets or engaging in expensive short selling. The first wave of hedge-fund-like mutual funds arrived on the scene in the mid-2000s with great fanfare. Known by names such as “long/short” and “130/30,” they took advantage of rules that allowed their managers to bet against stocks directly for the first time with a small part of their assets, just like the masters of the universe managing hedge funds.

Monte Carlo Simulation and Finance
by Don L. McLeish
Published 1 Apr 2005

Consequently, Vt = ∂V St + wt Bt ∂S and solving for wt we obtain: wt = 1 ∂V [V − St ]. Bt ∂S The conclusion is that it is possible to dynamically choose a trading strategy, i.e. the weights wt , ut so that our portfolio of stocks and bonds perfectly replicates the value of the option. If we own the option, then by shorting (selling) delta= ∂V ∂S units of stock, we are perfectly hedged in the sense that our portfolio replicates a risk-free bond. Surprisingly, in this ideal word of continuous processes and continuous time trading commission-free trading, the perfect hedge is possible. In the real world, it is said to exist only in a Japanese garden.

Broken Markets: How High Frequency Trading and Predatory Practices on Wall Street Are Destroying Investor Confidence and Your Portfolio
by Sal Arnuk and Joseph Saluzzi
Published 21 May 2012

Senator Ted Kaufman I didn’t know a great deal about high frequency trading and the negative effect it was having on the financial markets and the economy when I became a United States Senator early in 2009, taking the seat vacated by Vice President-elect Joe Biden. But thanks to Sal Arnuk and Joseph Saluzzi of Themis Trading, I learned quickly. During the Bush II administration, I became concerned about changes in the rules on short selling. Along with Republican Senator Johnny Isaakson, I wrote to SEC Chair Mary Schapiro, asking her to follow up on her confirmation hearing pledge to look into reinstating the “uptick rule,” which had been removed in what former SEC Chair Chris Cox admitted had been a mistake. Short sellers play an important role in maintaining an orderly market.

The Big Short: Inside the Doomsday Machine
by Michael Lewis
Published 1 Nov 2009

The Dow Jones Industrial Average had fallen 449 points, to its lowest level in four years, and most of the market-moving news was coming not from the private sector but from government officials. At 6:50 on Thursday morning, when Danny arrived, he learned that the chief British financial regulator was considering banning short selling--an act that, among other things, would put the hedge fund industry out of business--but that didn't begin to explain what now happened. "All hell was breaking loose in a way I had never seen in my career," said Danny. FrontPoint was positioned perfectly for exactly this moment. By agreement with their investors, their fund could be 25 percent net short or 50 percent net long the stock market, and the gross positions could never exceed 200 percent.

Learn Algorithmic Trading
by Sebastien Donadio
Published 7 Nov 2019

While the Z-score value is above or below the threshold limits (in this example, -1 or +1), a Z-score value within the range between the threshold limits denotes an improbable change of spread between the two symbol prices. Therefore, when this value is within this limit, this can be regarded as an exit signal. In the following diagram, we illustrate when we should exit a position: In this example, the following applies: When the Z-score is lower than -1, we short sell Symbol 1 for $3 and we buy it for $4, while, when the Z-score is in the range [-1,+1], we exit the position by buying Symbol 2 for $1 and selling it for $3. If we just get 1 share of the two symbols, the profit of this trade will be ($3-$4)+($3-$1)=$1. We will create a data frame, pair_correlation_trading_strategy, in the code.

The Great Depression: A Diary
by Benjamin Roth , James Ledbetter and Daniel B. Roth
Published 21 Jul 2009

At the same time there is talk that the Sheet & Tube-Bethlehem-Inland merger will be revived. There is nothing else to add. Insanity and suicide among prominent business men is on the increase. APRIL 13, 1932 For the 12th consecutive day stocks have been drifting lower. Congress starts an investigation of short selling. Business indexes reach new low. Steel mills operate at 20%. Sharon Steel Hoop and Ohio Works (of U.S. Steel) Plants shut down completely. B&O 8 1/2; N.Y. Central 20; Continental shares—comm. 3/8—pffd 7.8—Gen Fireproofing 5; Sheet & Tube pfd @ 35 and common @ 10. Some of these low priced stocks are bargains.

Insane Mode: How Elon Musk's Tesla Sparked an Electric Revolution to End the Age of Oil
by Hamish McKenzie
Published 30 Sep 2017

The article counted the zero-emission credits trading scheme that Tesla has benefited from and construction-related incentives from Nevada, Texas, and New York for Tesla, SpaceX, and SolarCity, such as the billion-dollar incentives package afforded to Tesla for the Gigafactory. The article quoted hedge fund manager Mark Spiegel, who short-sells Tesla stock, as saying Musk’s companies wouldn’t be around without government support. Three days later, the Times published Musk’s response. He called the subsidies “a pittance” compared to government support for fossil fuels companies. The International Energy Agency has estimated that the fossil fuels industry collects about $550 billion in global government subsidies annually, compared with about $120 billion for the much smaller renewables sector.

How to Be the Startup Hero: A Guide and Textbook for Entrepreneurs and Aspiring Entrepreneurs
by Tim Draper
Published 18 Dec 2017

Further, if a government pension like CalPERS is an investor, they influence the company to change the nature of its board to comply with political winds. And public investors want to see quarter to quarter progress, without regard for the long term, so companies are not as aligned with their investors as they were when they were private. Public investors can also short sell your stock, which in some cases is enough to drive the company out of business. A public company has to show its customers (and its competitors) how high its profit margins are, and after seeing them, the customers might try to renegotiate their contracts. Salaries and incentive pay are scrutinized by the public.

Concentrated Investing
by Allen C. Benello
Published 7 Dec 2016

His research led him to fill three library shelves with books, including Adam Smith’s Wealth of Nations, John von Neumann and Oskar Morgenstern’s Theory of Games and Economic Behavior, Paul Samuelson’s Economics, and Fred Schwed’s Where Are the Customer’s Yachts? In a notebook Shannon recorded a varied list of thinkers, including French mathematician Louis Bachelier, Benjamin 74 Concentrated Investing Graham, and Benoit Mandelbrot. He took notes about margin trading; short selling; stop‐loss orders; the effects of market panics; capital gains taxes and transaction costs. The only surviving document from Shannon’s research is a mimeographed handout from one of the lectures he delivered at MIT in the spring term of 1956, in a class called Seminar of Information Theory. According to the handout, the lecture, called The Portfolio Problem, covered The $64,000 Question, a wire service giving horse tips, and the Kelly Criterion.

Private Equity: A Memoir
by Carrie Sun
Published 13 Feb 2024

So I walked to a Starbucks, ordered a coffee, sat down on a chair, and browsed the Wall Street Journal on my phone, thinking about hedge funds. * * * — IN 1949 Alfred Winslow Jones created the first hedge fund strategy: long/short equity. His key innovation was combining the concepts of leverage (borrowing for increased exposure, thus higher returns when a basket of well-selected stocks went up) and short-selling (borrowing stocks from a lender to sell and repurchasing the shares when the prices dropped, thus decreasing net exposure and producing returns when the stocks went down). This strategy hinged on picking the right stocks. The result was higher returns at a lower risk because of a more diversified, more market-neutral—or hedged—portfolio.

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

Write out the put–call parity formula for Digital Organics’ stock, debt, and assets. b. What is the value of the company’s option to default on its debt? 35. Short sales and options pricing During the financial crisis of 2007–2009, some European companies argued strenuously that short-selling should be restricted in order to prevent speculators from driving down stock prices. Would restrictions on short-selling cause problems for trading in options? Hint: Suppose that investors want to sell calls to option dealers. How will the dealers hedge their positions? ● ● ● ● ● FINANCE ON THE WEB Go to finance.yahoo.com. Check out the delayed quotes for Apple for different exercise prices and maturities.

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If you’re wrong and the stock price increases, then sooner or later you will be forced to repurchase the stock at a higher price (therefore at a loss) to return the borrowed shares to the lender. But if you’re right and the price does fall, you repurchase, pocket the difference between the sale and repurchase prices, and return the borrowed shares. Sounds easy, once you see how short selling works, but there are costs and fees to be paid, and in some cases you will not be able to find shares to borrow.24 The perils of selling short were dramatically illustrated in 2008. Given the gloomy outlook for the automobile industry, a number of hedge funds decided to sell Volkswagen (VW) shares short in the expectation of buying them back at a lower price.

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Another 15 Chinese put warrants were similarly overvalued during this period. So why didn’t smart investors arbitrage the mispricing by selling the warrants and buying delta shares of stock? If short sales of the put warrants had been allowed, this arbitrage would have been very profitable. However, in China investors were prohibited by law from short-selling stocks or warrants. In addition, China limits the amount by which a share price may change in a single day to 10%. During the final few days of trading, the price of WuLiangYe stock was sufficiently high that the 10% limit meant that the put warrant would inevitably expire worthless. Yet the warrants traded for significant amounts of money.

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

It was about the money-grubbing form of speculation, the trading of government bonds on the Paris exchange, or Bourse, a thriving den of capitalism modeled after a Greek temple and located on the opposite river bank, geographically and intellectually, from the famed Sorbonne. Then as now in France, unbridled speculation had an unsavory reputation. While investment was socially desirable, pure gaming, or agiotage, was not. Futures trading on the exchange had been legalized only fifteen years earlier. And “shorting”—selling securities with borrowed money, to profit from a falling price— was beyond the pale. While there had been some books on financial markets by 1900, its study was not yet an academic discipline, much less an appropriate topic for a provincial seeking approval and patronage from the great Faculté des Sciences de l’Université de Paris.

The greatest trade ever: the behind-the-scenes story of how John Paulson defied Wall Street and made financial history
by Gregory Zuckerman
Published 3 Nov 2009

“"So I’'m eating my cornflakes and I read that John Paulson, the New York hedge fund king, has made £PS270 million betting that the Royal Bank of Scotland share price would fall over the last four months,”" Chris Blackhurst wrote in London’'s Evening Standard in February 2009. “"Prison isn’'t good enough for the short-selling fiend! He should be paraded down Fifth Avenue, naked, and then tied to a lamp-post so we can all take out our anger and despair on the grasping monster!”" Paulson was uncomfortable shorting these stocks—--not so much because of any guilt about profiting from falling shares but because there was more downside to wagering against stocks, which can soar an unlimited amount, than in owning them.

The Revenge of Analog: Real Things and Why They Matter
by David Sax
Published 8 Nov 2016

“I sat in meetings with bankers and investors, and they pointed to the iPad in front of them and told me, ‘In three years you are going to be out of business. There is no future in paper. Look at my iPad! People will stop writing.’” Berni said. “There was no way to get them not to make the mistake of projecting themselves onto the market. People were starting out with the belief in paper’s demise.” Many of those same skeptics took up short-selling positions, essentially betting against Moleskine’s stock, further driving down the share price. “There will always be a certain part of the world who will never be able to reconcile our success,” Berni said, adding with a wave of his hand that “these are the same people who say ‘But we live in a digital world!’”

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

There were many planted rumors that the Hong Kong government planned to give up the dollar peg and that the Chinese Renminbi would soon be devalued (Yam 2000). George Soros apparently tried something similar to Hungary. In March 2009, his fund was fined by a Hungarian regulator for “sending out false and misleading signals” on the shares of Hungary’s largest bank, OTP. Short selling of OTP shares had caused them to drop 14 percent in the last 30 minutes of trading on October 9, 2008. According to the regulator, this was part of a “significant and strong attack on Hungarian money and capital markets.” The central bank had to raise its benchmark interest rate to the highest in the European Union to defend the national currency, the forint.

The New Science of Asset Allocation: Risk Management in a Multi-Asset World
by Thomas Schneeweis , Garry B. Crowder and Hossein Kazemi
Published 8 Mar 2010

Moreover, this is before consideration is made for additional operational issues of a manager based vehicle relative to an algorithmic replication product. 125 Core and Satellite Investment: Market/Manager Based Alternatives EXHIBIT 6.7 Comparison Fund and Replication Product Fees Managed Accounts FOF Replication .20% 2.00% 20.00% 1.10% .40% 12.80% .20% 2.00% 25.00% 1.10% .40% 13.50% .10% 1.00% 0.00% .70% .35% 9.00% Trading Costs Management Fee Performance Fee Wrap/CPPI Administrative Break-even Return The purpose of this replication approach is to: ■ ■ ■ Directly capture the changing strategy emphasis of the benchmark Provide both low cost and low counterparty risk Provide high transparency and trading liquidity Exhibit 6.8 reflects the performance of the noninvestable CISDM Equity Long Short (ELS) index, a mutual fund ELS Hybrid Benchmark, and an ETF based replication process with volatility targeted to that of the Mutual Fund ELS Hybrid Benchmark. It should come as no surprise, given the relative restrictions on short selling for mutual fund products, that the mutual fund hybrid ELS benchmark has a higher volatility than that of the EXHIBIT 6.8 Comparison Benchmark, Mutual Fund, and Replication Performance 5/2007–5/2009 CISDM Equity Long/Short Index Mutual Fund ELS Hybrid Benchmark ELS Replication ELS Rep Half Vol/MF Return Annual Std Dev Annual Information Ratio Correlation CISDM ELS −2.2% 8.4% −0.27 1.00 −13.1% −7.4% 14.6% 15.1% −0.89 −0.49 0.65 0.81 1.00 0.98 −0.09 0.76 0.98 −0.62% 7.23% Correlation MF Based Hybrid ELS 126 THE NEW SCIENCE OF ASSET ALLOCATION VAMI: CISDM ELS, Mutual Fund ELS Hybrid, ELS Replication, ELS Replication (Risk Adjusted - Half Volatility) 110 100 90 80 70 M ay -0 Ju 7 n0 Ju 7 lA u 07 gS e 07 p0 O 7 ct N 07 ov D 07 ec -0 Ja 7 nFe 08 bM 08 ar -0 Ap 8 r-0 M 8 ay Ju 08 n0 Ju 8 lA u 08 gS e 08 p0 O 8 ct -0 N 8 ov D 08 ec -0 Ja 8 nFe 09 bM 09 ar -0 Ap 9 rM 09 ay -0 Ju 9 n09 60 CISDM Equity Long/Short Index ELS Replication EXHIBIT 6.9 Mutual Fund (ELS) Hybrid Funds ELS Rep HV/MF Comparison VAMI representative CISDM ELS Index.

Why It's Still Kicking Off Everywhere: The New Global Revolutions
by Paul Mason
Published 30 Sep 2013

Some countries resisted. Brazil responded to a 40 per cent rise of the real against the dollar with a tax designed to suppress the flow of capital into Brazil. It spent tens of billions of dollars in the foreign exchange markets buying its own currency to depress the exchange rate, and slapped a ban on short-selling the dollar inside Brazil. But other countries could not, or would not, use capital controls. The outcome speaks for itself: the UN’s global Food Price Index, which had been set at 100 in 2004, rocketed from 180 in July 2010 to an all-time high of 234 in February 2011. In spring 2011, after Bernanke vigorously denied that QEII had had the slightest impact on the Arab Spring, UK economist Andrew Lilico produced a graph showing the almost exact correlation between Federal Reserve money-printing operations and global commodity prices.

Mathematics of the Financial Markets: Financial Instruments and Derivatives Modelling, Valuation and Risk Issues
by Alain Ruttiens
Published 24 Apr 2013

Efficiency also implies, practically speaking, enough market liquidity. Market prices are assumed to be continuous, like the Wiener process used to model the underlying (cf. Chapter 8, Sections 8.1 and 8.2). Market prices and interest rates are assumed to be traded at the mid: no bid–offer spread is taken into account. Short selling is always available, at no cost. There are no taxes or brokerage fees applicable to the transactions. The prevailing risk-free interest rate – the rate applicable to non-defaultable sovereign debt – corresponding to the maturity of the option is well determined and remains constant during the whole life of the option.

Fool's Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe
by Gillian Tett
Published 11 May 2009

Lloyds TSB, one of the stronger British banks, announced it was taking over the operations of ailing HBOS. The same day, central banks unveiled yet more coordinated liquidity injections, including a deal between the Bank of England and the Fed to pump dollar liquidity into London. British regulators also announced a ban on short selling of bank shares, in an effort to stem the collapse of shore prices. On the other side of the Atlantic, on the same day, the Treasury unveiled a safety net for money-market funds. Once again, this used Fed money to stave off a run. Then, at the end of the week, Henry Paulson announced a bold plan by which the Treasury would earmark up to $700 billion in funds to purchase “troubled assets” from the banks, such as their super-senior holdings.

Advances in Financial Machine Learning
by Marcos Lopez de Prado
Published 2 Feb 2018

High turnover may also occur with a low number of trades, if every trade involves flipping the position between maximum long and maximum short. Correlation to underlying: This is the correlation between strategy returns and the returns of the underlying investment universe. When the correlation is significantly positive or negative, the strategy is essentially holding or short-selling the investment universe, without adding much value. Snippet 14.1 lists an algorithm that derives the timestamps of flattening or flipping trades from a pandas series of target positions (tPos). This gives us the number of bets that have taken place. Snippet 14.1 Deriving the timing of bets from a series of target positions Snippet 14.2 illustrates the implementation of an algorithm that estimates the average holding period of a strategy, given a pandas series of target positions (tPos).

Why the Dutch Are Different: A Journey Into the Hidden Heart of the Netherlands: From Amsterdam to Zwarte Piet, the Acclaimed Guide to Travel in Holland
by Ben Coates
Published 23 Sep 2015

Peat provided a cheap energy source, while the establishment in Amsterdam of a commodity exchange, public exchange bank and lending bank drew capital from across the continent. The city produced financial innovations such as the direct bank transfer, and the Dutch guilder was, for a time, the dollar of its day, a currency accepted by traders around the world. Dutch traders were even credited with inventing the art of short-selling, the type of high-risk stock market speculation that would later be blamed for helping crash stock markets worldwide. Early Dutch speculation led inevitably to excesses, most famously a 1637 bubble in the price of tulips, which saw prices rise more than twentyfold in just one month, with a single onion-sized bulb costing roughly the same as a decent family home.

Easy Money: Cryptocurrency, Casino Capitalism, and the Golden Age of Fraud
by Ben McKenzie and Jacob Silverman
Published 17 Jul 2023

An extraordinary number of Chinese listings seemed nothing more than shell companies with no credible accounting and little real business behind them. Somehow, despite the rampant fraud, I was still losing money. Distracted by all the excitement of launching a new career as a journalist, I had fallen victim to one of the classic mistakes of retail investors. I refused to acknowledge that I was wrong on the timing. In short selling, being wrong as to when a stock plunges is the same as being wrong. There’s no consolation prize for correctly assessing a fraud but betting against it too early. My portfolio of short bets was, to put it generously, in shambles. I started with $250,000 that summer, by November it was down to $38,931.

We're Not Broken: Changing the Autism Conversation
by Eric Garcia
Published 2 Aug 2021

Those friends loved that I had an encyclopedic knowledge of American politics; all the things that back home in California made me a geek or an oddball were well received in Washington. My friend Raj actually wanted to check out embassies on a Saturday, and my friend Gurwin and I would spend Sundays at a Barnes and Noble reading, ending the night on the steps of the Capitol, where he would teach me economic terms like short-selling and bull and bear markets. To this day I am still close with many of them. Still, throughout my life, I often shied away from disclosing that I was autistic to my friends. The first time I did so wasn’t until college, when I joined my campus newspaper, the Daily Tar Heel. Once again, it was a place where I learned what it meant to have healthy friendships based on a mutual connection; in this case, a love for journalism.

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

Millions have opened investment accounts on their mobile phones, where they leverage scant savings to speculate on flaky investments like meme stocks and crypto scams. Using their keyboards to close the stubborn wealth gap is doomed to fail, and to turn frustration to anger. The 2021 GameStop and other meme-stock narratives, featuring a united front of heroic small day traders fighting evil short-selling hedge funds, masks an ugly reality. A cohort of hopeless, jobless, skill-less, saving-less, debt-burdened individuals is being exploited once again. Many believe that financial success lies not in good jobs, hard work, and patient saving and investment, but in get-rich-quick schemes. They flock to wagers on inherently worthless assets like cryptocurrencies (or “shitcoins,” as I prefer to call them).

Quicksilver
by Neal Stephenson
Published 9 Sep 2004

Frequently a group of bears will come together and form a secret cabal—they will spread false news of pirates off the coast, or go into the market loudly selling shares at very low prices, trying to create a panic and make the price drop.” “But how do they make money from this?” “Never mind the details—there are ways of using options so that you will make money if the price falls. It is called short selling. Our investor—once we tell him about your invasion plans—will begin betting that V.O.C. stock will drop soon. And rest assured, it will. Only a few years ago, mere rumors about the state of Anglo/Dutch relations were sufficient to depress the price by ten or twenty percent. News of an invasion will plunge it through the floor.”

…

“During that interval,” Eliza continued, “our investor will have the opportunity to reap a colossal profit, by selling the market short. And in exchange for that opportunity he’ll gladly buy you all the lead and powder you need to mount the invasion.” “But that investor is not Mr. Sluys—?” “In any short-selling transaction there is a loser as well as a winner,” Eliza said. “Mr. Sluys is to be the loser.” “Why him specifically?” Bolstrood asked. “It could be any liefhebber.” “Selling short has been illegal for three-quarters of a century! Numerous edicts have been issued to prevent it—one of them written in the time of the Stadholder Frederick Henry.

…

It simply means to repudiate the contract, and refuse to pay. According to Frederick Henry’s edict, that repudiation will be upheld in a court of law.” “But if it’s true that there must always be a loser when selling short, then Frederick Henry’s decree must’ve stamped out the practice altogether!” “Oh, no, your grace—short selling thrives in Amsterdam! Many traders make their living from it!” “But why don’t all of the losers simply ‘appeal to Frederick’?” “It all has to do with how the contracts are structured. If you’re clever enough you can put the loser in a position where he dare not appeal to Frederick.” “So it is a sort of blackmail after all,” Bolstrood said, gazing out the window across a snowy field—but hot on Eliza’s trail.

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

JP Morgan Katz, Lawrence keiretsus Kenya, government expenditures in Keynes, John Maynard labor force: migration of mobility of, protective legislation and resilience of skills of training women in, See also employment; income inequality; wages labor unions. See unions late developers Lee Kuan Yew Lehman Brothers: board members of CEO of, collapse of risks taken by salaries in short selling by subsidiaries of Lenin, Vladimir liquidity See also monetary policy liquidity risk livelihood insurance Lucas, Robert E., Jr. Madoff, Bernard Malaysia: economic growth of export-led growth strategy of investment in managed capitalism: in Asia challenges of export-led growth strategies and investment and success of Mandeville, Bernard, The Fable of the Bees markets.

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 credit ratings agencies moral community, 145–46 moral hazard, 134 Morello, John A., 197nn39–41 Morgenson, Gretchen, 189–90n1 Morris, Robert, 100 Morris, Sue, 203n3 Morrissey, Stephen, 208–9n21, 209n23, 210n43 mortgage-backed securities: in ABACUS, 143; credit default swaps and, 38–40; credit ratings of, 24–25, 32–35, 36–37, 192nn28–30; default risk of, 33, 35, 36–37, 38, 143, 165; development of, 32; short selling, 34–35, 143; subprime loans in, xiv, 32–33, 36, 192n30; tranches of, 33 mortgage brokers, 65–66, 201n20 mortgages: fees of, 65, 200n16, 201n20; interest payments on, 201n32; interest rates on, 119; subprime, xiv, 32–33, 36, 192n30. See also house purchases Moss, David A., 145, 226–27nn46–48 Moss, Michael, 184n29, 208n10 Mothers against Drunk Driving (MADD), 115–16 Mouawad, Jad, 223n3 Mozaffarian, Dariush, 184n28 Muellbauer, John, 200n14 Mukherjee, Siddhartha, The Emperor of All Maladies, 165–66, 231n4, 231n6 Mulligan, Thomas S., 222n18 Mullins, David W., Jr., 131, 222n21, 222n23, 223n24 Muolo, Paul, 121, 207n43, 221nn20–21, 221n27 Murphy, Anthony, 200n14 Murrow, Edward R., 106 Nader, Ralph, 136, 223n2 Nammacher, Scott, 130 naproxen (Aleve), 86–87, 88, 92 narrative psychology, 194–95n3 narratives.

Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever
by Robin Wigglesworth
Published 11 Oct 2021

Given the size of its holdings relative to the shrinking size of the stocks, the result could have been mayhem—except for another wrinkle. Most index funds generate extra revenues through securities lending, loaning out the shares to traders who want to bet on them falling. The trader in practice rents the shares for a period, sells them, and hopefully buys them back after a fall, pocketing the difference, a process known as short-selling. Given their fading fortunes, short-sellers had swarmed over Meredith and Tanger. But to sell the shares the Dividend ETF had to first recall those it had rented out—forcing short-sellers to buy them back to hand them over again, causing the share prices to spike.21 That helped soften the impact of State Street’s ETF from selling, but the consequence was that the two stocks fluctuated wildly through January.

Bean Counters: The Triumph of the Accountants and How They Broke Capitalism
by Richard Brooks
Published 23 Apr 2018

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

The Sense of Style: The Thinking Person's Guide to Writing in the 21st Century
by Steven Pinker
Published 1 Jan 2014

The fifth edition of the American Heritage Dictionary, published in 2011, added ten thousand words and senses to the edition published a decade before. Many of them express invaluable new concepts, including adverse selection, chaos (in the sense of the theory of nonlinear dynamics), comorbid, drama queen, false memory, parallel universe, perfect storm, probability cloud, reverse-engineering, short sell, sock puppet, and swiftboating. In a very real sense such neologisms make it easier to think. The philosopher James Flynn, who discovered that IQ scores rose by three points a decade throughout the twentieth century, attributes part of the rise to the trickling down of technical ideas from academia and technology into the everyday thinking of laypeople.37 The transfer was expedited by the dissemination of shorthand terms for abstract concepts such as causation, circular argument, control group, cost-benefit analysis, correlation, empirical, false positive, percentage, placebo, post hoc, proportional, statistical, tradeoff, and variability.

file:///C:/Documents%20and%...
by vpavan

A growth fund is a mutual fund that invests in growth stocks. guaranteed investment contract: Investment offered by insurance companies, often to a company pension or profit-sharing plan, that guarantees a rate of return over the contract's lifespan. hedge fund: Private investment pool for wealthy investors that is not regulated by the SEC. Can use more speculative strategies, such as short-selling (borrowing shares in anticipation of the price falling) and investing with borrowed money. Doesn't have to disclose holdings or strategies, making it difficult to determine risk. hedging: Strategy to reduce risk that involves locking in existing profits while giving up the chance for further gains.

Madoff Talks: Uncovering the Untold Story Behind the Most Notorious Ponzi Scheme in History
by Jim Campbell
Published 26 Apr 2021

* A “hedge fund” is an investment fund that pools capital from accredited individuals or institutional investors and invests in a variety of assets, often with complicated portfolio composition and varying risk management techniques. * A “private placement memorandum” (PPM) is used in a private offering of securities by a private placement issuer or investment fund. * “Naked shorting” is the practice of short-selling a tradable asset of any kind without first borrowing the security or ensuring that the security can be borrowed. It leaves the investor with unlimited downside exposure. * “Absolute return” funds are structured to be noncorrelated to the market, which was the opposite of Madoff’s SSC. * Sterling Equities owned the New York Mets, the regional television network SportsNet New York, and owns or manages billions of dollars of real estate interests.

Number Go Up: Inside Crypto's Wild Rise and Staggering Fall
by Zeke Faux
Published 11 Sep 2023

* * * — ON WALL STREET, my report caught the attention of hedge funds. In particular, short sellers. These are funds that make money by betting against shaky companies, then waiting for them to fail. Some of them try to hurry the process along by publishing reports exposing frauds. Several analysts at large funds that specialized in short selling told me that they had placed bets against Tether, or were considering doing so. For them, it was an appealing bet. There was no risk that Tether would ever rise above $1.00, so they wouldn’t lose money. But there was clearly at least a possibility that its price would crash. “I’m betting a shit-ton of money on them being a crook,” Fraser Perring, co-founder of Viceroy Research, told me.

Nobody's Fool: Why We Get Taken in and What We Can Do About It
by Daniel Simons and Christopher Chabris
Published 10 Jul 2023

The SEC also charged Nikola Corporation with defrauding investors, and the company agreed to pay $125 million to resolve those fraud charges [https://www.sec.gov/news/press-release/2021-267]. More on Nikola and the fraud investigation: A. Rice, “Last Sane Man on Wall Street,” New York, January 20, 2022 [https://nymag.com/intelligencer/2022/01/nathan-anderson-hindenburg-research-short-selling.html]. 24. Even if you find a plausible connection between hiring Larry Taylor and an improvement in retention, there is no proof that his intervention caused that improvement. Business results aren’t like the randomized controlled trials used to evaluate medical treatments. There is no control group that got a “placebo consultation” against which to compare the success of Taylor’s clients.

You've Been Played: How Corporations, Governments, and Schools Use Games to Control Us All
by Adrian Hon
Published 14 Sep 2022

The volatility on GameStop’s shares was so high, the New York Stock Exchange halted trading nine times on January 25.65 Alongside the memes and screenshots, there was also a strange mix of righteousness and nihilism about the GameStop battle. Some users believed that by banding together, they could take down evil short-selling hedge funds (a stand-in for everything wrong with the financial establishment). Others, like Jacob Chalfant, a high school senior interviewed by the New York Times, said, “We’re living in a system where there’s no such thing as justice anymore and the entire world is falling apart. Nothing really matters, so we might as well try to have fun while we’re here.”66 At the time of the interview, he had lost over $800 on his $1,035 investment, but he believed his commitment to the stock earned him “internet points” on r/wallstreetbets.

Nature's Metropolis: Chicago and the Great West
by William Cronon
Published 2 Nov 2009

For an early example, see Stevens, ” ‘Futures’ in the Wheat Market,” esp. 48–51; Albert Clark Stevens, “The Utility of Speculation in Modern Commerce,” Political Science Quarterly 7 (1892): 419–30; and Henry Crosby Emery, “Legislation against Futures,” ibid., 10 (1895): 62–86. For later, more technical discussions of the economics of hedging and its practical importance to the grain trade, see Alonzo E. Taylor, “Speculation, Short Selling, and the Price of Wheat,” Wheat Studies 7 (1931): 231–66; Holbrook Working, “Financial Results of Speculative Holding of Wheat,” ibid., 405–37; Truman F. Graf, “Hedging—How Effective Is It?” Journal of Farm Economics 35 (1953): 398–413; Holbrook Working, “Hedging Reconsidered,” ibid., 544–61; and Williams, Economic Functions of Futures Markets. 193.Samuel S.

…

“Chicago before the Fire, after the Fire, and To-day.” Scribner’s Magazine 17 (1895): 663–79. Taaffe, Edward J., Richard L. Morrill, and Peter R. Gould. “Transport Expansion in Underdeveloped Countries: A Comparative Analysis.” Geographical Review 53 (1963): 503–29. Taylor, Alonzo E. “Speculation, Short Selling, and the Price of Wheat.” Wheat Studies 7 (1931): 231–66. “The Metropolis of the Prairies.” Harper’s New Monthly Magazine 61 (1880): 711–31. “The New Time Standards,” Railway Age 8, no. 46 (Nov. 15, 1883): 722. “The Union Stockyards December 25, 1865.” Chicago History 7 (1965–66): 289–96. Thomas, Edwin N., Richard A.

Fortunes of Change: The Rise of the Liberal Rich and the Remaking of America
by David Callahan
Published 9 Aug 2010

In Edey’s words, Hunting was “the patron saint of the environmental movement.” John Hunting’s big spending on environmental issues has become less and less unusual since he started Beldon. There is not only David Gelbaum’s giving, but also Robert W. Wilson’s, who made his fortune with a hedge fund that specialized in short-selling. In 2006, Wilson gave $147 million to a number of environmental groups, including the American Bird Conservancy, Environmental Defense, the Nature Conservancy, and the Wildlife Conservation Society.17 Wilson is an example of why there has been so much cash pouring into liberal causes in recent years.

Nerds on Wall Street: Math, Machines and Wired Markets
by David J. Leinweber
Published 31 Dec 2008

Traders profit when unsuspecting investors, lured in by the unusual market volume, buy the stock. Thr ee Hundr ed Years of Stock Market Manipulations Goat . . . here’s the short’s handbook by:Tel212 (M/NY, NY) 3/11/00 2:48 AM Msg: 16909 of 17535 Message boards Guidelines, used by shorters that short sell stock. 1. Be anonymous, of course. 2. Use 10% fact and 90% suggestion in one’s posts. Facts give credibility, while suggestion does the “sell.” 3. Let others “help” you learn about a stock thereby developing rapport and a support base. 4. Use multiple handles, but develop a unique style for each. 5.

Seventeen Contradictions and the End of Capitalism
by David Harvey
Published 3 Apr 2014

This is what many of the banks and foreign investors did during the South-East Asian crisis of 1997–8 and what investors are now doing as they buy up masses of cheap foreclosed housing in, for example, California to rent out until the property market revives. This is what the hedge funds do, though under very different conditions, when they short-sell in fictitious capital markets. But what this means is that more and more capital is being invested in search of rents, interest and royalties rather than in productive activity. This trend towards a rentier form of capital is reinforced by the immense extractive power that increasingly attaches to rents on intellectual property rights to genetic materials, seeds, licensed practices and the like.

The New Trading for a Living: Psychology, Discipline, Trading Tools and Systems, Risk Control, Trade Management
by Alexander Elder
Published 28 Sep 2014

See also specific trading vehicles based on fear emotional commitment in indicators for, see specific indicators by insiders not being able to sell Sell orders: Force Index indicator for and Stochastic signals SentimenTrader.com Shapiro, Roy “Shark bite” losses “Shopping for indicators” Short interest Short Percent of Float Short sellers, rallies/declines and Short selling: Force Index indicator for making money with Stochastic signals for stops with Triple Screen indicators for value zone in Shortsqueeze.com Short-term Force Index Short-term price cycles Short-term timeframe Short-term trading “Shoulders” Sibbet, James H. Signal(s). See also Indicators confidence in in market moves Signal line (MACD) crossover of MACD line and difference between MACD line and and MACD-Histogram Simple moving averages 6% Rule and concept of available risk as guideline for pyramiding 65-day New High–New Low Index Size of trades Iron Triangle of risk control for risk associated with 2% Rule for Skills, learning Slater, Tim “Slicing the bid-ask spread” technique Slippage and open interest overnight gaps in quiet markets Slow Stochastic Small traders CFDs for COT reports of options Smoothed Directional Lines (+DI13, −DI13) Social psychology Stock Market Barometer, The (William Hamilton) Soft stops Soros, George Source of money, in markets S&P 500 index applying OBV to and beta in scanning for trades Specialist Short Sale Ratio Speculative trading, in currencies Speculators farmers and engineers as institutional investors as position limits of Spikes Spike bounce signal Spikers SpikeTrade.com Spreads: bid-ask with CFDs with forex trades “slicing the bid-ask spread” technique futures Spreadsheet, for pre-open routine Spread trading Standard deviation channels (Bollinger bands) Steidlmayer, J.

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

National accounts now state that we are better off when more of our income flows to people who ‘manage' our money, or who gamble with their own. If professional investors profit by investing in property during a boom, new ways of accounting will register the profit as a rise in their GDP contribution. Short-selling (or ‘shorting'), which involves borrowing an asset and selling it in the expectation of buying it back after its price has fallen,11 is another speculative activity whose growth contributes to GDP under the new form of measurement. If money is made by shorting property-related investments before a slump, as investors such as the hedge fund manager John Paulson famously did before the 2008 crash, the profit increases GDP.

Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else
by Chrystia Freeland
Published 11 Oct 2012

The redbrick mansion was once home to Princess Diana and today is a home for her sons, but the most lavish celebration held on its grounds in the summer of 2011 was the annual gala auction hedge fund manager (and supermodel-dater) Arpad Busson organizes to raise money for ARK, the children’s charity he founded. Busson is a vocal proponent of philanthro-capitalism. ARK stands for Absolute Return for Kids, a play on the language of the hedge funds and their pursuit of absolute returns, often using aggressive techniques such as short selling, in contrast with generally more conservative mutual funds and their pursuit of relative returns, which is to say they aim to keep abreast of the wider investment pack. Busson thinks ARK needs to be run like a hedge fund. “If we can apply the entrepreneurial principles we have brought to business to charity, we have a shot at having a really strong impact, to be able to transform the lives of children,” he told The Observer.

What Happened to Goldman Sachs: An Insider's Story of Organizational Drift and Its Unintended Consequences
by Steven G. Mandis
Published 9 Sep 2013

Tourre says that he and Goldman did not have a duty to give investors details that the SEC says they should have disclosed and that the SEC did not show that he acted with the intention of defrauding investors. Goldman starts to shut down several proprietary trading groups, and many proprietary traders begin to leave as the SEC fines Goldman $225,000 for violating a rule aimed at regulating short selling (R). The Financial Industry Regulatory Authority (FINRA) says it is fining Goldman $650,000 for failing to disclose that the government was investigating two of its brokers. One of the brokers was Goldman vice president Fabrice Tourre. FINRA says Goldman did not have the proper procedures in place to make sure that this disclosure was made (R). 2011: In March, former Goldman board member Rajat Gupta is charged by the SEC with insider trading for passing information to the hedge fund Galleon Group that he learned in his capacity as a board member.

The Establishment: And How They Get Away With It
by Owen Jones
Published 3 Sep 2014

He was lauded by his party and much of the mainstream media for displaying a ‘bulldog spirit’. This ‘bulldog spirit’, however, was summoned to defend the interests of the City; these interests were conflated with those of the nation as a whole. The EU’s proposals had included reforming the damaging behaviour of hedge funds such as short-selling, as well as introducing a financial transactions tax, which did not just raise revenue but also promoted economic stability. Similarly the Chancellor, George Osborne, took legal action against the European Union to prevent a cap being imposed on bankers’ bonuses. Patriotism was used to rally support behind the interests of the wealthy and powerful.

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

The freedom to get in or out of the investment day by day built a sense of excitement. This advance both democratized and humanized nance: it brought many more people into the market even as it respected their demand for liquidity and need for pride of ownership while they held shares. The Amsterdam stock market became regulated when short selling (the sale of borrowed shares, not even owned by the seller) in 1609 led to market turmoil and the temporary abolition of that practice. The invention of the newspaper came soon after, and it was not long before the prices of the East India Company’s shares were reported regularly, spurring immense public interest in the investment.

Buy Now, Pay Later: The Extraordinary Story of Afterpay
by Jonathan Shapiro and James Eyers
Published 2 Aug 2021

From his home, he wrote about GameStop on social-media platform Reddit’s sub-group Wallstreetbets, under the pseudonym ‘Deep Fucking Value’, a homage to stock pickers who searched for undervalued companies. On YouTube he used another alias, Roaring Kitty, to urge his followers to get behind his trade. The crux of his thesis was that short-selling hedge funds—and in particular Melvin—were destroying the company that had sold people like Gill video games in their youth. Since Melvin had actually shorted more shares in GameStop than there were on issue, Gill surmised that if enough of the Reddit mob united to buy shares and drive the price higher, eventually Melvin would be squeezed out of its position.

This Land: The Struggle for the Left
by Owen Jones
Published 23 Sep 2020

Soon after the election, the new Conservative chancellor, George Osborne, unveiled a battery of cuts in his first Spending Review, including £7 billion slashed from the welfare state, unleashing Britain’s age of austerity. This marked a seismic moment. Instead of blaming reckless financial entities for the runaway speculation and short selling that had triggered the crisis, the Conservative-led government saw an opportunity to turn its fire on those who had nothing whatsoever to do with the crash – particularly disabled people, single parents, public sector workers and the low-paid – but who would now be compelled to pay for it. Dearly, as it would turn out.

The Fund: Ray Dalio, Bridgewater Associates, and the Unraveling of a Wall Street Legend
by Rob Copeland
Published 7 Nov 2023

Dalio, hot off the NYSE floor, came in like a blitzkrieg, people who knew him then recalled. He styled himself a “technical analyst,” as opposed to one who traded on hunches, and was on the cutting edge in his methods. From his single room with a shared bathroom in redbrick Gallatin Hall, named after a former treasury secretary, Dalio talked about patterns in stock charts, short selling, and ways to spot profitable inconsistencies between seemingly unrelated markets. He pinned up stock charts on his walls. “In some ways, he was the most experienced of the inexperienced,” recalled Joel Peterson, a classmate and friend. The two did a group presentation once, and Peterson was more than happy to let Dalio do most of the talking because Dalio said he had been studying the markets since he was a preteen.

Fall; Or, Dodge in Hell
by Neal Stephenson
Published 3 Jun 2019

But was that alone sufficient motive to perpetrate a hoax on the scale of Moab? People had died. Thirty-one, at last count, had perished in traffic accidents or of heart attacks and strokes suffered while fleeing from imaginary bombs. Who would do something like that? The obvious motive was money. Someone had figured out a way to profit from the hoax, most likely by short-selling stock. And no doubt the SEC was already investigating that angle, combing through stock exchange records for suspicious patterns of activity in the days leading up to it. Or maybe it was a more subtle play, something that the SEC wouldn’t be able to pin on anyone. But it seemed like a roundabout and uncommonly irresponsible way to get slightly richer.

…

The total budget for the hoax was estimated to have been less than one million dollars. The networks had actually paid out more than that for the privilege of airing fake footage supplied by the hoaxers. Those payments, made in Bitcoin, had gone to anonymous overseas accounts presumably controlled by the hoaxers. Between that and short-selling various affected stocks on Wall Street, it appeared that they had paid for the exploit many times over. Which was a mere detail when set against the thirty-one deaths and the direct economic losses, which were way into the tens of billions. Lawsuits filed against social media companies—including Lyke—depressed their valuations, distracted their executives, and took years to resolve.

Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis
by Anatole Kaletsky
Published 22 Jun 2010

At last Henry Paulson, pressured by the Fed37 and by foreign governments, realized that he had no alternative to large-scale and systemic public intervention. The plan for a $700 billion Troubled Asset Relief Program (TARP) was agreed that Thursday at lunchtime and deliberate leaks about its gigantic scale, combined with a temporary ban on short selling, triggered a near-record rally on stock markets around the world that evening and the following day. The banks threatened with insolvency just a few hours earlier were suddenly reprieved. Even at this point, however, it emerged that the U.S. treasury secretary had not grasped the nature of the problem—as was all too apparent in his disastrous interactions with the Congress during the following two weeks, which turned out even worse, in terms of financial losses, than the immediate aftermath of Lehman.

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

More to the point, Keating could not sue to halt the examination, because the suit would be public, and depositors, bondholders, and shareholders of Lincoln Savings and its parent holding company, ACC, would have asked what Keating was trying to hide from the examiners. The Bank Board would have answered that question, in court, with the findings of the FHLBSF examination that demonstrated how badly mismanaged and abused the S&L was. The “short” selling alone (jargon for investments made in the belief that the share price will soon fall sharply) would have tanked ACC’s stock and Keating’s wealth. The Bank Board knew exactly how specious Keating’s claims were likely to be because he had recently filed his claim of purported bias by Gray, and that motion contained many pages of invective against Gray, but not a single act or statement of bias against Keating.

Three Felonies a Day: How the Feds Target the Innocent
by Harvey Silverglate
Published 6 Jun 2011

When a Wall Street financier and short-seller named James Chanos read Weil’s column, reported Gladwell, Chanos delved into the publicly filed and readily available Enron financial reports. Cash flow was negligible, he discovered. “They were basically liquidating themselves,” Chanos told Gladwell. As a result, he proceeded to short-sell Enron shares, a financial maneuver that reaps profits if and when the price of the stock declines. Bethany McLean, tipped off by Chanos, wrote an article in Fortune, headlined “Is Enron Overpriced?,” in March 2001. three felonies a day 127 As analysts and investors followed suit and began to look at Enron’s financial statements, confidence plummeted.

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

Homebuyers Have Negative Equity: Report,” CBC News, posted on February 12, 2008, www.cbc.ca/money/story/2008/ 02/12/homeequity.html (accessed February 14, 2008). 70 Mr. Greenspan and the federal government Edmund L. Andrews, “Fed and Regulators Shrugged as the Subprime Crisis Spread,” The New York Times, December 18, 2007, front page. 71 While Goldman Sachs was underwriting The Daily Reckoning website has the best narrative accounts of Goldman Sachs’s short-selling strategy during the subprime-mortgage meltdown: Adrian Ash, “Goldman Sachs Escaped Subprime Collapse by Selling Subprime Bonds Short,” Daily Reckoning, October 19, 2007, http://www.dailyreckoning.com.au/goldman-sachs-2/2007/10/19. 71 For help predicting the extent Gregory Zuckerman covered the Paulson-Greenspan relationship for The Wall Street Journal.

Mathematical Finance: Theory, Modeling, Implementation
by Christian Fries
Published 9 Sep 2007

Hedge (Hedge) Eine Investition, welche das Risiko (unerwünschter) Preisschwankungen in einem Finanzprodukt reduzieren soll, z.B. durch Beziehen einer gegenstelligen Position in relevanten Finanzprodukten. Vergleiche auch Replikationsportfolio. Short (Short) Ein Underlying Xi (t) ist short, falls es zu negativen Anteilen Teil eines Portfolios (z.B. des Replikationsportfolios) ist (φi (t) < 0). short selling: Leerverkauf. Long (Long) Ein Underlying Xi (t) ist long, falls es zu positiven Anteilen Teil eines Portfolios (z.B. des Replikationsportfolios) ist (φi (t) > 0). 413 This work is licensed under a Creative Commons License. http://creativecommons.org/licenses/by-nc-nd/2.5/deed.en (german version) Comments welcome. ©2004, 2005, 2006 Christian Fries Version 1.3.19 [build 20061210]- 13th December 2006 http://www.christian-fries.de/finmath/ APPENDIX E.

The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order
by Paul Vigna and Michael J. Casey
Published 27 Jan 2015

Patrick Byrne, the CEO of Salt Lake City–based online retailer Overstock.com, which began accepting bitcoin in early 2014 to become what was then the biggest revenue-earning merchant to do so, believes his firm can play such a catalytic role creating a bitcoin “ecosystem” in the developing world. Byrne’s belief in bitcoin was forged during the financial crisis, when hedge funds began short-selling Overstock’s shares, a practice in which borrowed securities are dumped on the market so as to profit when they fall to a lower price. The hedge funds said they didn’t trust the company’s accounting; Byrne saw it as purely manipulative speculation, all facilitated and encouraged by Wall Street’s centralized systems for buying, selling, lending, and borrowing securities.

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

Imagine it is 1999 and you are a hedge fund manager considering whether to speculate against Amazon.com’s stock by shorting it. (The stock quintupled in 1998 and was, to all appearances, grossly overvalued.) To carry out the short trade, you will first have to find somebody willing to lend you as many Amazon shares as you want to short. (That is how short-selling works: the speculator sells a stock he doesn’t own by borrowing some stock to give to the buyer. Then he buys back the stock in the market, hopefully at a lower price, and delivers it to the party he borrowed from.) Finding a lender won’t be easy. In 1999, Amazon and many other Internet companies, being new to the market, didn’t have very many shares outstanding.

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

It certainly didn’t hurt to beat the market, but the ultimate goal was to have more money to manage. Mutual fund investors could also add or withdraw money anytime, the funds’ investment holdings were disclosed regularly, and there were tight restrictions on just what sort of securities the manager could buy (short selling was off the table). These rules, which have since been loosened slightly, helped inspire the investor confidence that made mutual funds the nation’s predominant investment vehicle, but they didn’t help managers beat the market. When stocks are cheap, investors are wont to desert; when they’re expensive, they pour in new money.

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

The suspension of gold payments by Britain, the second-greatest industrial power, raised fears that other industrial countries might be forced to abandon gold. Central bankers called the suspension “a world financial crisis of unprecedented dimensions.”3 For the first time ever, the New York Exchange banned short selling in an effort to shore up stock share prices. But much to New York’s surprise, stocks rallied sharply after a short sinking spell, and many issues ended the day higher. Clearly, British suspension was not seen as negative for American equities. Nor was this “unprecedented financial crisis” a problem for the British stock market.

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

The suspension of gold payments by Britain, the second-greatest industrial power, raised fears that other industrial countries might be forced to abandon gold. Central bankers called the suspension “a world financial crisis of unprecedented dimensions.”3 For the first time ever, the New York Stock Exchange banned short selling in an effort to shore up stock share prices. But much to New York’s surprise, stocks rallied sharply after a short sinking spell, and many issues ended the day higher. Clearly, British suspension was not seen as negative for American equities. Nor was this “unprecedented financial crisis” a problem for the British stock market.

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

The Cost of Capitalism: Understanding Market Mayhem and Stabilizing Our Economic Future. New York: McGraw-Hill, 2009. Basel Committee on Banking Supervision. Review of the Differentiated Nature and Scope of Financial Regulation: Key Issues and Recommendations. Basel, Switzerland: Bank for International Settlements, 2010. Beber, Alessandro, and Marco Pagano. “Short-Selling Bans Around the World: Evidence from the 2007-09 Crisis.” Centre for Studies in Economics and Finance Working Paper no. 241. Online at http://www.csef.it/WP/wp241.pdf. Bernanke, Ben. “Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression.” American Economic Review 73 (1983): 257-76.

Good Economics for Hard Times: Better Answers to Our Biggest Problems
by Abhijit V. Banerjee and Esther Duflo
Published 12 Nov 2019

But one-third of the households who prefer food argued that getting foodstuff protects them against the temptation to misuse cash. In Dharmapuri in Tamil Nadu, one respondent said, “Food is much safer. Money gets spent easily.” Another said, “Even if you give ten times the amount I will prefer the ration shop since the goods cannot be frittered away.”23 SHORT-SELLING THEMSELVES And yet there is nothing in the data to suggest they are right to be so worried. As of 2014, 119 developing countries had implemented some kind of unconditional cash assistance program and 52 countries had conditional cash transfer programs for poor households. Together, one billion people in developing countries participated in at least one of these.24 The initial phase of many of these programs was implemented as an experiment.

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

That such a response, to suspend market forces, was flagged up by Mahathir Mohamad, then prime minister of Malaysia, even as the economic boom continued, indicated the tussle to come between two very different views as to how resources should be allocated. As the piece above noted, by August 1996 the Thais had implemented policies that made it increasingly difficult for foreigners to borrow and short sell the Thai baht. That was a mild form of capital control compared to those widely employed across the world from 1945 to around 1980, but it was a non-market response that raised eyebrows at the time. There were many countries in Asia where the operation of market forces, red in tooth and claw, seemed to me to be incompatible with the local socio-political goals.

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

He concluded, “We may have encouraged financial institutions to grow in ways that do not directly facilitate or enhance the reason for having a financial system in the first place.” If only that were the worst of it. But it wasn’t. The invention of synthetics may well have both magnified the bubble and prolonged it. Take the former first. Synthetic CDOs made it possible to bet on the same bad mortgages five, ten, twenty times. Underwriters, wanting to please their short-selling clients, referenced a handful of tranches they favored over and over again. Merrill’s risk manager, John Breit, would later estimate that some tranches of mortgage-backed securities were referenced seventy-five times. Thus could a $15 million tranche do $1 billion of damage. In a case uncovered by the Wall Street Journal, a $38 million subprime mortgage bond created in June 2006 ended up in more than thirty debt pools and ultimately caused roughly $280 million in losses.

Oil: Money, Politics, and Power in the 21st Century
by Tom Bower
Published 1 Jan 2009

Despite the scandal, Phibro and others continued to trade with him and Glencore, his corporate reincarnation in Zug. Phibro’s aggression invited retaliation. During that year, Shell took exception to Phibro squeezing Gatoil, a Lebanese oil trader based in Switzerland. Gatoil had speculated by short-selling Brent oil without owning the crude. Subsequently unable to obtain the oil to fulfill its contracts because Phibro had bought all the consignments, it defaulted on contracts worth $75 million. Refusing to bow out quietly, Gatoil reneged on the contracts and sent telexes to all its customers blaming Hall’s squeeze.

Trade Your Way to Financial Freedom
by van K. Tharp
Published 1 Jan 1998

The difficulty many people have with the stock market is that (1) there are times when few stocks are trending up so that the best opportunities are only on the short side; (2) people don’t understand shorting so they avoid it; (3) the exchange regulators make it difficult to short (that is, you have to be able to borrow the stock to short and you have to short on an uptick); and (4) retirement accounts typically prohibit shorting. Nevertheless, if you plan for short selling, then it can be very lucrative under the right market conditions. FUNDAMENTAL ANALYSIS I’ve asked another friend, Charles LeBeau, to write the section on fundamental analysis. LeBeau is well known as a former editor of a great newsletter entitled the Technical Traders Bulletin. He is also a coauthor of an excellent book, Computer Analysis of the Futures Market.

Analysis of Financial Time Series
by Ruey S. Tsay
Published 14 Oct 2001

A version of the cost-of-carry model in the finance literature states f t, − st = (rt, − qt, )( − t) + z t∗ , (8.32) where rt, is the risk-free interest rate, qt, is the dividend yield with respect to the cash price at time t, and ( − t) is the time to maturity of the futures contract; see Brenner and Kroner (1995), Dwyer, Locke, and Yu (1996), and the references therein. The z t∗ process of model (8.32) must be unit-root stationary; otherwise there exist persistent arbitrage opportunities. Here an arbitrage trading consists of simultane- THRESHOLD CO - INTEGRATION 333 ously buying (short-selling) the security index and selling (buying) the index futures whenever the log prices diverge by more than the cost of carrying the index over time until maturity of the futures contract. Under the weak stationarity of z t∗ , for arbitrage to be profitable, z t∗ must exceed a certain value in modulus determined by transaction costs and other economic and risk factors.

Advanced Stochastic Models, Risk Assessment, and Portfolio Optimization: The Ideal Risk, Uncertainty, and Performance Measures
by Frank J. Fabozzi
Published 25 Feb 2008

Fabozzi The Handbook of European Fixed Income Securities edited by Frank J. Fabozzi and Moorad Choudhry The Handbook of European Structured Financial Products edited by Frank J. Fabozzi and Moorad Choudhry The Mathematics of Financial Modeling and Investment Management by Sergio M. Focardi and Frank J. Fabozzi Short Selling: Strategies, Risks, and Rewards edited by Frank J. Fabozzi The Real Estate Investment Handbook by G. Timothy Haight and Daniel Singer Market Neutral Strategies edited by Bruce I. Jacobs and Kenneth N. Levy Securities Finance: Securities Lending and Repurchase Agreements edited by Frank J. Fabozzi and Steven V.

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

Indeed, the tax lawyers for rich people like Ronald Lauder, who inherited his fortune from his mother, Estée Lauder, even figured out how to “have your cake and eat it too,” that is, in effect, sell your stock and not pay the tax.57 Their plan, and other similar tax-avoidance schemes, involves complicated transactions including short selling (selling borrowed stock) and derivatives. Though this particular loophole was eventually closed, tax lawyers for the rich are always seeking to outsmart the IRS. The inequality in dividends is greater than that in wages and salaries, and the inequality in capital gains is greater than that in any other form of income, so giving a tax break to capital gains is, in effect, giving a tax break to the very rich.

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

It is clear from our analysis in chapters 4 and 5 and from the lessons of the two previous bubbles ending in October 1987 and in early 1994 that those assumptions naively overlooked the contagion, leading to overinvestments in the build-up period preceding the crash and resulting instability, which left the Hong Kong market vulnerable to so-called speculative attacks. Actually, hedge funds in particular are known to have taken positions consistent with a possible autopsy of major c r a s h e s 249 crisis on the currency and on the stock market, by “shorting” (selling) the currency to drive it down, forcing the Hong Kong government to raise interest rates to defend it by increasing the currency liquidity, but as a consequence making equities suffer and making the stock market more unstable. As we have already emphasized, one should not confuse the “local” cause with the fundamental cause of the instability.

A Line in the Sand: Britain, France and the Struggle for the Mastery of the Middle East
by James Barr
Published 15 Feb 2011

About 26 November – the date on which the vote had been supposed to take place – France’s short and undistinguished-looking delegate to the United Nations, Alexandre Parodi, received a visit from a Jewish businessman named Bernard Baruch, a tall and handsome man who had made a fortune years earlier short-selling in the foreign exchange markets. Now in his late seventies, Baruch had long been connected with the Democratic Party. He had helped to bankroll Woodrow Wilson’s 1912 presidential campaign – when Parodi would have been eleven years old – and during the war had been an informal, though clearly influential, economic adviser to Franklin D.

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

The theme of market irrationality is also explored in John Cassidy’s How Markets Fail; The Logic of Economic Calamities. Michael Lewis’s The Big Short: Inside the Doomsday Machine focused on a few individuals who early on realized that there was a bubble in the housing market, and that exceptional profits could be achieved from short-selling mortgage-related securities. Then there was Suzanne McGee’s Chasing Goldman Sachs: How the Masters of the Universe Melted Wall Street Down ... And Why They Will Take Us to the Brink Again and The Meltdown Years: The Unfolding of the Global Economic Crisis by Wolfgang Munchau, Charles R. Morris’s The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash, James Grant’s Mr Market Miscalculates: The Bubble Years and Beyond, Charles Gasparino’s The Sellout: How Three Decades of Wall Street Greed and Government Mismanagement Destroyed the Global Financial System, Barry Rithholtz’s Bailout Nation: How GREED and EASY MONEY Corrupted Wall Street And Shook the World Economy, and Meltdown: How Greed and Corruption Shattered Our Financial System and How We Can Recover by Katrina vanden Heuvel and the Editors of the Nation.

Bill Marriott: Success Is Never Final--His Life and the Decisions That Built a Hotel Empire
by Dale van Atta
Published 14 Aug 2019

Bill announced a further cut in Marriott’s projected capital expenditures in 1991 to $650 million, compared to $1.3 billion in 1990. Marriott shares dropped to $8.37½ in the first week of October. That meant the market value of the company had fallen from $3.98 billion to $861 million in less than a year. To make matters worse, short sellers descended on Marriott en masse, like a flock of vultures. Short selling is a legal way for investors to benefit from a decline in a stock’s price. Essentially, they borrow the stock, wait for it to lose value, and then buy the stock at a lower price, turning the shares over to the lender and pocketing the difference. For example: a short seller borrows 1,000 shares of Marriott stock at $10 a share from an investor pool, promising to pay the lender or replace the shares in a certain amount of time—say, thirty days.

Alpha Trader
by Brent Donnelly
Published 11 May 2021

I recognized the similarity of the setup and was strict about trading EUR only from the short side until after the pair had already dropped massively lower. A hedge fund PM told me about how the founder of his fund (and the firm’s biggest risk taker) put a Post-It note on his monitor in 2009 that said: LONG OR FLAT. At that time, the authorities had just changed all the rules (suspended mark-to-market, banned short selling, bailed out the banks, bailed out the car companies, announced quantitative easing, etc.) and he realized that it was going to be impossible for stocks to go down from that moment on. I usually preach “nimble” as a key defining characteristic of successful short-term traders. There is, however, a time to have one core view and stick to it.

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

FIGURE 10.3 Settlement fails around quarterly refundings (in billions of U.S. dollars) for many Treasury securities often increases, owing to reductions in the supply of securities available for borrowing (as the refunding draws near, fewer securities are made available by those who own them), and because the dealer community tends to increase its short-selling activities, which boosts the demand for borrowed securities. Fails also tend to increase around the end of a calendar quarter owing to increases in financing costs that occur when securities lenders refrain from lending their securities (Figure 10.4). A DEALER’S BOOK A dealer who takes big positions is operating like a banker.

…

Meanwhile, when other off-the-run issues became expensive, they often stay that way; traders can’t short such issues as they would in the United States because they can’t cover their shorts with a reverse. A CALENDAR SPREAD Another trade people frequently do with bond futures is calendar spreads—here, they are making bets about the relative steepness of the yield curve over, say, a 3-, 6-, or 12-month period. They are saying, “I think that the curve is going to invert, so I want to be short [sell] certain calendar spreads,” or, “I think that the curve is going to steepen, so I want to be long [buy] certain calendar spreads.” Here’s an example. In June 2005, a trader could have observed that the curve had been getting flatter, and she might have reasoned that the curve was likely to continue to flatten and then invert.

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

We went long a bunch of the no-debt retailers who had lots of cash and had gotten crushed—stocks like Gap, which was an $11 stock with $5 in cash and over $1 in earnings. We bought Shaw, which had $12 in cash and had fallen all the way to $18. Are there mistakes you learned from as a trader? As an equity trader, I learned the short-selling lessons relatively early. There is no high for a concept stock. It is always better to be long before they have already moved a lot than to try to figure out where to go short. What are examples of concept stocks? The Internet stocks in the 1990s and biotech stocks in the late 1990s to early 2000s.

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

The importance of this only became clear when, almost three years later, the Fed released documents that showed that, in the days before this access was secured, Morgan Stanley drew $48.4 billion from the Primary Dealer’s Credit Facility, while Goldman Sachs drew $12 billion; the PDCF had not been set up to sustain drawings on this scale.50 The Fed also extended a lifeline to the huge Reserve Primary money market fund (which had been forced to write off $785 million of commercial paper following Lehman’s bankruptcy). And this was soon followed by the Treasury’s blanket guarantee on the $3.4 trillion in mutual fund deposits, a ban on short-selling of financial stocks, and the seizure and fire-sale of Washington Mutual to prevent the largest bank failure in US history. At the same time, the New York branches of foreign banks were given greater access than ever to the Fed’s discount window; indeed, as the crisis reached its peak they were the biggest borrowers there, “accounting for at least 70 per cent of the $110.7 billion borrowed during the week in October 2008 when use of the program surged to a record.”51 The integration of global financial markets was now such that the Belgian bank Dexia, which guaranteed bonds such as those issued by the Texas State Veterans Land Board and the Los Angeles Transportation Authority, received $37 billion from the Fed in the eighteen months after Lehman’s collapse.

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

In fact, over the course of the seventeenth century, Amsterdam was where the most sophisticated financial techniques for speculation evolved. Joseph De la Vega’s Confusion de Confusiones, printed in 1688, chronicles the trading by bulls and bears betting on the movement of the VOC shares, the writing of put and call options, the short-selling of stock, and the clever means by which even small investors could speculate in fractions of shares. Investors traded with one another by issuing transfer receipts that were then used to change the ownership in the books of the company at a later date. Because of the time lag between the trade and the transfer of record, all sorts of interim speculation could—and did—occur.

740 Park: The Story of the World's Richest Apartment Building
by Michael Gross
Published 18 Dec 2007

In the first, securities are bought and sold simultaneously in order to take advantage of tiny technical price differences. Hedge funds are unregulated private mutual funds for a limited number of extremely wealthy investors that use a laundry list of sophisticated techniques—including options, short selling, and leverage, futures, swaps, and arbitrage strategies—to minimize risk and maximize returns. Englander, who was untouched by the Boesky scandal, ran the business and managed his partner’s erratic moods while Mulheren concentrated in investments. In awe of his partner yet also keenly aware of his flaws, Englander loved to quote Mulheren confronting a group of besuited management consultants in a Hawaiian shirt.

Elon Musk
by Walter Isaacson
Published 11 Sep 2023

See Tesla Autopilot project Gadde, Vijaya, 513, 525 Gage, Tom, 126, 127, 128, 129 Galaxian, 33 Garcetti, Eric, 258 Garver, Lori, 206–7, 211, 212 Garvey, John, 108 Gates, Bill, 435, 436–39 artificial intelligence and, 600–601 EM’s admiration for, 80 management style, 166, 436 philanthropy and, 436–37, 438, 439 praise for EM, 438–39 startup and, 133 Tesla short-selling and, 437–38 Gelles, David, 296–97 General Motors (GM), 128, 143, 193, 277, 408, 420–21 Gerstenmaier, Bill, 189, 384 Gertrude (pig), 401–2 Gingrich, Newt, 262 Girotra, Kunal, 370 Giuliani, Rudy, 79 Gladiator, 443 Glover, Juleanna, 262, 297 Gonzalez, Lorena, 420 Google artificial intelligence and, 241–42, 243–44, 600, 601, 602, 603, 605 self-driving cars, 246 venture capitalists and, 63 Gorman, James, 492 Gracias, Antonio, 155 automation and, 274 background of, 156–57 Burning Man and, 379 on EM’s childhood trauma, 19 EM’s impulsive tweets and, 290, 614–15 EM’s management of Twitter and, 540 on EM’s personality, 158 EM’s psychological tailspin (2018) and, 288 EM’s visit to Errol and, 265 family gatherings (2022) and, 591 proposal to take Tesla private ad, 292 Roadster production costs and, 158, 161 SEC deal and, 294 Tesla EM removal attempts and, 191 Tesla financial issues and, 161 Tesla investment, 138, 180 Twitter acquisition and, 449, 489–90, 511, 512 Watkins and, 158–59 Griffin, Kathy, 554 Griffin, Michael, 98, 99, 101, 207 Grimes (Claire Boucher), 305, 376 astronaut transport and, 348 Austin home plans and, 472 Banks attacks and, 308–9 The Boring Company and, 258–59, 472 breakup with EM, 379–80 Christina’s birthday party and, 409 Cybertruck project and, 320 Ellison visit (2022), 590–91 EM’s Boca Chica home and, 330, 331, 345 EM’s children with, 340, 341–42, 379, 415–16, 466, 468 EM’s children with Zilis and, 467–68 EM’s contentment aversion and, 5, 41 EM’s management of Twitter and, 530, 575 on EM’s personality, 5, 310–11 EM’s politics and, 423, 424 EM’s psychological tailspin (2018) and, 307, 311 family gatherings (2022) and, 591 on Gates, 438 Inspiration4 mission and, 381, 385 Met Gala and, 380–81 Polytopia and, 425–26, 427 relationship with EM, 306–10 Saturday Night Live and, 377 server move and, 584 stalking and, 574–75 Starship launch and, 607, 609, 612, 615 Starship system and, 481 Twitter acquisition and, 7 Twitter and, 448 video games and, 7, 426, 455 visit to family, 454 X’s birth and, 340, 341, 342 Zilis and, 413 Grimes, Michael, 460, 513 Gross, Michael, 66 Guillen, Jerome, 282, 405 Gwynne, Jennifer, 57 Haile, Tony, 508 Halberstam, David, 573 Haldeman, J.

Debt: The First 5,000 Years
by David Graeber
Published 1 Jan 2010

We are used to seeing modern capitalism (along with modern traditions of democratic government) as emerging only later: with the Age of Revolutions—the industrial revolution, the American and French revolutions—a series of profound breaks at the end of the eighteenth century that only became fully institutionalized after the end of the Napoleonic Wars. Here we come face to face with a peculiar paradox. It would seem that almost all elements of financial apparatus that we’ve come to associate with capitalism—central banks, bond markets, short-selling, brokerage houses, speculative bubbles, securization, annuities—came into being not only before the science of economics (which is perhaps not too surprising), but also before the rise of factories, and wage labor itself.88 This is a genuine challenge to familiar ways of thinking. We like to think of the factories and workshops as the “real economy,” and the rest as superstructure, constructed on top of it.

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

One of the first books I read was about the British stock market—I was fascinated to discover that they used exotic terminology like "ordinary shares." I read Reminiscences of a Stock Operator, a book by Edwin Lefevre about Jesse Livermore, a famous 1920s speculator whose nickname was the Boy Plunger of Wall Street. Legend had it that he made $100 million by short-selling on the eve of the 1929 crash. He got rich and went broke three times before finally committing suicide in 1940. He was a great student of human nature; Lefevre's book is a font of investing wisdom, with Livermore sayings such as "Bulls and bears make money; but pigs get slaughtered." I also read every book I could find about J.

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

Helpfully for the architects of these subtle reforms, ECJ doctrine also evolved. In an important case brought by the UK challenging the crisis management powers of the EU securities market regulator (ESMA) on the grounds that they contravened Meroni, the Court ruled in 2014 that ESMA’s power to ban short selling was acceptable given that it was hedged about with constraints, including a duty to consult member states.36 All this occurred without the formal core of the Court’s nondelegation doctrine being jettisoned. In consequence, the “Level 2” rules drawn up by the European Supervisory Authorities (ESAs) are, once finalized, formally issued by the Commission.

EuroTragedy: A Drama in Nine Acts
by Ashoka Mody
Published 7 May 2018

A centerpiece of their strategy has been to create some of the best schools in the world and advance their universities to compete with the finest in the world.45 I can see that China is trying to recapture the global scientific preeminence it held in the tenth century.46 Make no mistake: today, more so than ever, a nation’s schools and colleges will win the race for the future. As I emphasized in my London remarks, knowledge has “a very short sell-​by date,” for which reason, I said, German prosperity must “be sought through investment in research, education and science, and this to a disproportionate degree.” The German government has committed “a lot of resources” to education, and we will continue to do so. We need more motivated students and teachers.

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

With Bear Stearns, Lehman Brothers, and Merrill Lynch already extinct, the Fed acted to save the two survivors among the big five investment banks: Goldman Sachs and Morgan Stanley. To protect them from the run on short-term lending, the Fed reclassified Goldman and Morgan as bank-holding companies, entitling them to emergency loans from its discount window. Meanwhile, the Securities and Exchange Commission banned short selling of the two firms’ stock. The metaphorical Greenspan put had been replaced by a direct ban on speculative attacks on Wall Street. The post-Lehman chaos vindicated Greenspan’s earlier readiness to respond forcefully to market shocks; later even Hank Paulson would refer to Lehman’s collapse as “an economic 9/11.”

New York
by Edward Rutherfurd
Published 10 Nov 2009

Then you need to buy a judge. Tammany arranged all that. Boss Tweed was your man.” He closed his eyes for a moment, savoring the memory. “The police were all good Tammany boys. The judges, the legislators, even the governor of New York State, he’d bribed them. On Wall Street, we made hay. You could water stock, short-sell your shareholders, anything was possible. And if a judge ruled against you, why, he’d get another one to give you a counter-judgment that would keep the game in play for years. “Those were the days for men of vision. Jay Gould—and he, in my opinion, was the greatest speculator of them all—he almost persuaded the President of the United States, Ulysses Grant himself, to hold back the bullion reserves so that Gould could corner the gold market.

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

*2Fortune magazine ranks the largest 500 companies based on sales and refers to them as the “Fortune 500.” This group of companies can be used as a rough proxy for U.S.-based business. Return to text. *3A short-seller borrows a stock and sells it, betting it will go down. If so, the “short-seller” profits from buying the stock back cheaper. He loses if the price rises. Short-selling is normally risky: you are betting against the long-term trend of the market. Return to text. *4Member of the Disciples of Christ Protestant denomination. This familiar term is used by the Buffett family. Return to text. *5In those days, the amount of gold held by government treasuries fixed the amount of dollars in circulation.