The Road to Ruin
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Borio, Claudio, 48
Born, Brooksley, 151, 152–53, 155, 172
Brady, Nicholas, 45, 122
Brady bonds, 45
Brainard, Lael, 104, 206
Brazil, 135
Bretton Woods system, 41–43, 65–66, 201
Brexit referendum, 174, 207, 272–74
Bridgewater, 48
Brinsley, Ismaaiyl, 250
Brisbane G20 bail-in template, 25–26, 35
British Virgin Islands, 76–77
broker-dealers, 156
Bronze Age Civilization, collapse of, 297, 298
Brooks, Kathleen, 271
Brown, Andrew, 248
Buffett, Warren, 58, 110, 120, 122, 133, 136, 140, 141
Bureau of Investigation (FBI), 244
Burnett, Erin, 160
Bush, George H. W., 67–68, 229
Bush, George W., 49, 165, 168, 170, 245, 260, 262
Bush (George W.) administration, 162–63, 164, 171
butterfly effect, 96, 101
Caesar, Augustus, 242
Caesar, Julius, 242
Çakir, Mehmed, 296
camera surveillance, 254–55
capital controls, 32–33, 41
capitalism
monopoly big business and, 232–33
Schumpeter’s prediction of socialism supplanting, 235–40, 261
Capitalism, Socialism and Democracy (Schumpeter), 217, 232, 233–34
capital markets
Bayesian statistics and, 99–105
collapses in, 116–17
as complex systems, 11–12, 96–105, 109–17, 145–49
crowd-anticrowd model of, 110–11, 112–15
derivatives’ gross notional value, risk embedded in, 142–49, 150, 157–58
emergence and, 111–12, 145, 148
random walk model of, 112–15
capital requirements
for banks, 31, 155–56
for broker-dealers, 156
surcharge requirements, 31
Capone, Al, 244
Carolingian Renaissance, 81–82
cash, war on, 27–30
cash and carry curb exchanges, 27–28
Caterpillar, 217, 218, 219
Cat’s Cradle (Vonnegut), 22–23, 24, 31
causal inference. See Bayesian statistics
Cayman Islands, 76–77
Cayne, Jimmy, 120
Center for Monetary and Banking Studies Geneva Report, 224–26, 229
Central American Free Trade Agreement (CAFTA), 222
Central Intelligence Agency (CIA), 13, 99
certainty, 8
Chandler, Marc, 102
chaos, 147
chaos theory, 97
Charlemagne, 81–82
Charles V, Emperor, 82
Chase Manhattan, 30–31
Chemical Bank, 30–31
Cheney, Dick, 262
China, 83, 84–85, 215, 223
credit crisis in, 198–99
debt-to-GDP ratio of, 224
gold acquisition by, 71, 88, 278–79
Shanghai Accord and, 101–2
state capitalist model used in, 238
trade policy of, 215
yuan added as reference currency for SDRs, 70–71, 279
yuan devaluation of 2015 by, 271–72
China Development Bank, 279
China Investment Corporation, 164
Chumley, Cheryl K., 252
Churchill, Winston, 7
Citibank, 19, 30, 72, 264
Citicorp, 133–34, 154
Citigroup, 163–64
civil asset forfeitures, 251–53
Civilian Conservation Corps, 259
classical economics, 14
classical gold standard, 36, 61
climate change, 86–87
Cline, Eric H., 176
Clinton, Bill, 67–68, 151, 154, 229
Clinton, Hillary, 260
Clinton administration, 245
CNBC, 138
codetermination law (Germany), 229
cognitive dissonance, 4
coin tosses, 106–7, 108
Colonna family, history and wealth of, 280–82, 290
Columbus, Christopher, 6
Commerce Clause, 244
Commodity Futures Modernization Act of 2000, 154–55
community banks, 263
community organizing, 260
comparative advantage, 207, 208, 211, 212–14
complexity theory, 9–10, 11–12, 96–117, 241
adaptive behavior (feedback) in, 12, 108–17
agents and, 11, 107–9
application of, in modeling complex systems, 97–98
Bayesian statistics and, 99–105
capital markets and, 11–12, 96–105, 109–17, 145–49
collapses in, 116–17
communication and interaction of agents in, 11, 108
derivatives risk and, 142–49
diversity and, 11, 108
economic systems and, 210–11
emergence and, 111–12, 145, 148, 277
energy needed to maintain complex systems, 297–98
examples of complex systems, 107
examples of noncomplex phenomena, 106–7
foreshocks of next financial crisis (See foreshocks of next financial crisis)
linked complexity and, 276–77
Lorenz’s work on, 96, 97, 101, 106
magnitude of next financial crisis, 268–69
nuclear weapons testing and, 98–99
phase transition in, 116
power curve systems, 210–11
scale in, 145
small changes in input as producing widely divergent outputs in, 148
timing of next financial crisis, indistinctness in, 267–68
unexpected outcomes in, 148
Comprehensive Drug Abuse Prevention and Control Act of 1970, 251
Concert of Europe, 203
conditional correlation, 136
confirmation bias, 4
Congress of Vienna Final Act, 1815, 203
connectedness, 108
in capital markets, 11
Consumer Financial Protection Bureau, 172
contagion, 24, 132, 135
contango, 188
Continental Illinois, 154
Continuity of Operations Plan, 52–53
conversion of ordinary income into capital gains, 74
Corn Laws (Great Britain), 215
corporate tax avoidance mechanisms, 72–74
corporatism, 261–62
corruption, 223
Corzine, Jon, 120, 138, 140
Council on Foreign Relations, 219
Cox, Christopher, 164
Craig, Daniel, 56
Cramer, Jim, 160
creative destruction, 217, 231–34, 235
Creditanstalt, 39–40
credit cards, 255
criminalization of everyday behavior, 243–45
cross-border tax treaties, 73–74
crowd-anticrowd model, 110–11, 112–15
crowds, 110
currency pegs, 41–42
currency wars, 199
Curse of Cash, The (Rogoff), 30
Cyprus, 51, 76–77
banking crisis of 2012, 24–25
D. E. Shaw, 130
debt, 223–30
economic growth in 1990s and early 2000s and, 223
emerging market, 197–98, 223
energy-related, 197–98, 223
explosive growth of, since 1990, 223
Geneva Report on levels and consequences of, 224–26
as potential trigger for financial collapse, 197–99
debt-to-GDP ratios, 223–24
of China, 224
in developed economies, from 2000 to 2013, 223–24
in emerging markets, from 2009 to 2014, 224
of United States, 42
deflation
Bernanke’s response to, 228
Greenspan’s response to, 228
inflation-deflation tug-of-war in current market environment, 195–96
negative interest rates and, 28–30
as potential trigger for next financial crisis, 199
short-term outlook for, 196
de Gaulle, Charles, 43
democracy, 238
Deng Xiaoping, 235
Department of Homeland Security, 52
depression, 229–30. See also Great Depression
derivatives, 20, 31–32, 74
Commodity Futures Modernization Act of 2000 repeal of regulation of, 154–55
deregulation of, 121
early termination rights, Federal Reserve rule requiring abandonment of, 32
expansion in volume of, since Panic of 2008, 46, 48
as form of debt, 181
increase in gross notional value of, from 2001 to 2007, 159
opaqueness of off-balance sheet, 150
risk of, as function of gross notional value, 142–49, 150, 157–58
swaps (See swaps)
Desert Snow, 253
d’Estaing, Valéry Giscard, 43
devaluations
of Chinese yuan, in 2015, 271–72
during Great Depression, 39
of Mexican peso, in 1994, 174
of Russian ruble, in 1998, 135, 174
of sterling, in crisis of 1967, 42
of Thai baht and Indonesia rupiah, in 1997, 132
dice throws, 106–7
digital threats, 85–86
digitization of surveillance, 243, 254–55
Dillinger, John, 244
Dimon, Jamie, 18, 263
disintermediation (shadow banking), 179
disorder, 85
disordered pattern, 114
distributed denial of service attacks, 85
diversification, 282
diversity, 108
in capital markets, 11
The Divide: American Injustice in the Age of the Wealth Gap (Taibbi), 248–50
Dodd, Christopher, 57–58
Dodd-Frank Wall Street Reform and Consumer Protection Act, 24, 31, 171–73, 262, 263, 264
dollar
devaluation of, in 1971 and 1973, 61
gold convertibility abandoned, in 1971, 23, 43, 61, 65–66, 193, 208, 221
King Dollar policy, 221–22
pegged to gold, at Bretton Woods, 41, 42, 201
Shanghai Accord and, 101–2
shortage of (See dollar shortage)
sterling supplanted by, as reserve currency, 200–202
dollar shortage, 194–197
deflation and, 199
evidence of, 195
leveraged condition of new money created by Fed, 194
liquidations and, 194–95
in 1950s, 196–97
TIPS, gold, ten-year Treasury note pricing as evidence of, 195–96
Triffin’s dilemma and, 197
dollar standard, 67–68
Donvan, John, 291
dot-com bubble, 2000, 174, 180, 181
Draghi, Mario, 29, 46, 206
Drexel Burnham, 122
driverless cars, 255
Drudge, Matt, 233
D’Souza, Dinesh, 243
Dudley, William C., 177
dynamic comparative advantage, 214–15
dynamic systems, 11–12
Eagle Horizon, 52
Ebola, 24
economic growth and prosperity
in 1950s and 1960s, 221
in 1970s and 1980s, 221–22
in 1990s and early 2000s, 222–23
economics, 5–14
academia and, 9
Austrian, 6, 14
Bayesian statistics (causal inference) and, 3, 9–10, 12–13
behavioral psychology and, 4, 9–11
classical, 14
complexity theory and, 9–10, 11–12
dogmatism entrenched in current models of, 5–9
elite consensus theories of, 205–30
equilibrium models of, 7, 11, 12, 208–11
Historical school of, 14, 234–35
Keynesianism/Neo-Keynesianism, 6, 14, 44, 206–7, 208, 222
mathematical modeling and, 8–9
monetarists/monetarism, 6, 7–8, 14, 44, 206, 208, 222
risk theories and, 8
as science, 5
efficiency, 213
efficient market hypothesis, 124, 196, 208
Eichengreen, Barry, 201
Einstein, Albert, 6, 211
Eisenhower, Dwight D., 49
elastic money, 66
Eliot, T. S., 53–54, 202
elites. See global elites
Emanuel, Rahm, 55, 89
emergence, 111–12, 145, 148, 277
emerging market’s dollar-denominated debt, 197–98, 223, 224
Employee Retirement Security Act of 1974 (ERISA), 285
endogenous feedback, 108
energy-related debt, 197–98, 223
entrepreneurs/entrepreneurship, 239
equilibrium models, 7, 11, 12, 208–11
equity basket swaps, 129
Espionage Act of 1917, 257–58
European Central Bank (ECB), 30
European systemic collapses, 202–4
Eurozone, 101–2
Everaert, Luc, 104
Exchange Stabilization Fund (ESF), 45
Executive Order 6102, 40, 64
Executive Order 11825, 40
exogenous feedback, 108
externalities, 215
E-ZPass surveillance, 254
Facebook, 254
facial recognition software, 254
factor utilization, 223
falsity, 8
Fama, Eugene, 208
family business, 285, 289
Fannie Mae, 165
fascism, 256–66
action through state power as hallmark of, 257
big business-big government alliance in, 262–63
corporatism, distinguished, 261–62
crisis as aid to advancement of, 260
under FDR, 259–60
under Hoover, 258–60
nonideological nature of, 256–57
Schumpeter’s identification of means by which socialism blends into, 240
socialism, distinguished, 264
in United States, 256–60
under Wilson, 257–58, 259–60
Wilson’s definition of, 256
FATCA (Foreign Account Tax Compliance Act), 78–79
Faust, Jon, 176–79, 182, 183–84, 185
FBI, 244
Federal Communications Commission, 262
federal income tax, 257
Federal Reserve, 176–86, 257
Bernanke-Yellen improvisations since 2008, effect of, 182–83
currently building bubble, failure to identify, 176–82
dual mandate of, 209
expansion of balance sheet to quench 2008 crisis by, 47
Faust’s role in drafting statements of, 177–78, 183
frequentist statistical methods, reliance on, 184, 185, 186
Greenspan-Bernanke approach to bubbles, 180–81
Long-Term Capital Management failure and, 45–46, 138–39
obsolete economic models, reliance on, 179, 184
Federal Reserve Act, 262
feedback, in complex systems, 12, 108–17
Ferdinand, Franz, 36
Ferdinand, Sophie, 36
Feuerstein, Don, 122
fiat money, 61
financial math, 8–9
financial panics/crises
Asian-Russian financial crisis of 1997–98, 44, 45, 132–33, 135, 174
Brisbane G20 bail-in template and, 25–26
cash and carry curb exchanges and, 27–28
contagion and, 24, 132, 135
control of SIFIs as preparation for next, 18–22
Cyprus banking crisis of 2012, 24–25
in easy money period, post-1971, 44
foreshocks of next, 268–77
FSB technical report with template for future, 26
Geneva Report taxonomy of, 225–26, 229
Great Depression (See Great Depression)
Greek sovereign debt crisis of 2015, 24, 26–27
ice-nine freezing or lockdown of markets and (See ice-nine freezing or lockdown of markets)
Latin American debt crisis, 1982, 44, 45
Long-Term Capital Management, collapse of (See Long-Term Capital Management)
mechanism by which panics spread, 24–25
Mexican peso crisis of 1994, 44, 45, 174
money printing and, 21–22, 24
Panic of 1907, 34–35
Panic of 1914, 35–38
Panic of 1998 (See Panic of 1998)
Panic of 2008 (See Panic of 2008)
potential triggers of next, 176–204
stock market crash, of 1987, 4, 24, 151, 174
system scale of, 200
U.S. emergency powers available for, 49–51
financial repression, 42
Financial Stability Board (FSB), 26, 31
Financial Stability Oversight Council (FSOC), 172–73
Fink, Larry, 16–17, 18, 20
First Chicago, 30–31
First World War, 36–37, 38, 61–64, 202–3, 204, 260
Fischer, Stanley, 118
Fisher, Irving, 6, 66, 181
Fisher, Peter, 120, 138–39
Fisher, Richard, 179
fixed exchange rates, 41, 42, 214
fixed-point attractor, 147–48
Fleming, Ian, 55
Fletcher, Ian, 212, 220
floating exchange rates, 44, 61, 67, 207, 208, 213–14
Fool’s Gold (Tett), 127
Forbes, Kristin, 206
Ford, Gerald, 40
Foreign Account Tax Compliance Act (FATCA), 78–79
foreshocks of next financial crisis, 268–77
Brexit referendum as, 272–74
central bank responses to, 275
Chinese yuan devaluation of 2015 as, 271–72