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jerryking : financial_crises   16

Bagehot by James Grant — an engaging biography of a purveyor of punditry
August 2, 2019 | Financial Times | by John Plender

Bagehot: The Life and Times of the Greatest Victorian, by James Grant, WW Norton, RRP£19.99/$28.95, 368 pages
19th_century  biographies  books  book_reviews  economics  financial_crises  financial_history  journalists  magazines  paradoxes  politicaleconomy  pundits  Victorian  Walter_Bagehot 
august 2019 by jerryking
How a private equity boom fuelled the world’s biggest law firm
June 6, 2019 | Financial Times | James Fontanella-Khan and Sujeet Indap in New York and Barney Thompson in London.

Jeff Hammes took the helm at a Chicago-based law firm called Kirkland & Ellis in 2010, with the aim of turning it into a world-beater, few in the industry thought he stood a chance.......known as a good litigation firm in Chicago with a decent mid-market private equity practice, in the blockbuster dealmaking world, however, the firm was largely irrelevant. Nobody took them seriously on Wall Street.....Fuelled by explosive growth in private equity, aggressive poaching of talent and most of all, a business model that resembles a freewheeling investment bank, Kirkland has become the highest-grossing law firm in the world.....This rise reflects the shift in the financial world’s balance of power since the financial crisis. Investment banks, the dominant force before 2008, have been eclipsed by private equity firms, which now sit on hundreds of billions of dollars of investment funds.

Kirkland thrived by hitching itself to this dealmaking activity. The firm presents with a relentless — many say ruthless — focus on growth, a phenomenal work ethic and a desire to up-end what it sees as a lazy hierarchy. Key questions: can its winning streak can continue? Will its private equity clients continue to prosper? how will Kirkland cope if and when the private equity boom ends? And can a firm with such a hard-charging culture survive in the long run?....Robert Smith’s Vista Equity has grown to manage assets from $1bn to $46 in a decade while working with Kirkland.....To establish Kirkland as a major player, Mr Hammes turned his attention to recruitment. ....poaching proven M&A experts and targeting all areas of dealmaking.....To entice the best lawyers to join its ranks, Kirkland managed to exploit a structural rigidity in its more traditional white-shoe and magic circle rivals. A dwindling but still significant number of elite firms remunerate equity partners using a “lockstep” model......
Kirkland sought rising stars in their late thirties who were at the bottom of this ladder, stuck in the queue for the highest share of profits. Part of its pitch was money — “With compensation, we can go as high as we want,” says one partner — but the other part was an almost unprecedented level of autonomy.
Big_Law  booming  business_development  Chicago  compensation  concentration_risk  dealmakers  deal-making  eat_what_you_kill  financial_crises  growth  hard-charging  high-end  hiring  howto  hustle  Kirkland_Ellis  law  law_firms  litigation  mid-market  organizational_culture  poaching  private_equity  recruiting  Robert_Smith  superstars  talent  turnover  Vista  Wall_Street  winner-take-all  work_ethic  world-class 
june 2019 by jerryking
Lina Khan: ‘This isn’t just about antitrust. It’s about values’
March 29, 2019 | Financial Times | by Rana Foroohar.

Lina Khan is the legal wunderkind reshaping the global debate over competition and corporate power......While still a student at Yale Law School, she wrote a paper, “Amazon’s Antitrust Paradox”, which was published in the school’s influential journal..... hit a nerve at a time when the overweening power of the Big Tech companies, from Facebook to Google to Amazon, is rising up the agenda......For roughly four decades, antitrust scholars — taking their lead from Robert Bork’s 1978 book The Antitrust Paradox — have pegged their definitions of monopoly power to short-term price effects; so if Amazon is making prices lower for consumers, the market must be working effectively.....Khan made the case that this interpretation of US antitrust law, meant to regulate competition and curb monopolistic practices, is utterly unsuited to the architecture of the modern economy.....Khan's counterargument: that it doesn’t matter if companies such as Amazon are making things cheaper in dollars if they are using predatory pricing strategies to dominate multiple industries and choke off competition and choice.....Speaking to hedge funds and banks during her research, Khan found that they were valuing Amazon and its growth potential in a way that signified monopoly power..." I’m interested in imbalances in market power and how they manifest. That’s something you can see not just in tech but across many industries,” says Khan, who has written sharp pieces on monopoly power in areas as diverse as airlines and agriculture. " Khan, like many in her cohort, believes otherwise. “If markets are leading us in directions that we, as a democratic society, decide are not compatible with our vision of liberty or democracy, it is incumbent upon government to do something.” Lina Khan has had a stint as a legal fellow at the Federal Trade Commission, consulted with EU officials, influenced competition policy in India, brainstormed ideas with presidential hopeful Elizabeth Warren and — recently joined the House Subcommittee on Antitrust, Commercial and Administrative Law. The 2008 financial crisis she thinks “about markets, and the government’s response to them, and certain forms of intervention that they do take, and that they don’t take”.....Khan, Lynn and others including the Columbia academic Tim Wu have developed and popularised the “new Brandeis” school of antitrust regulation, hearkening back to the era in which Louis Brandeis, the “people’s lawyer”, took on oligarchs such as John D Rockefeller and JP Morgan.....Lina sees Amazon as not just a discount retailer but as a marketing platform, delivery and logistics network, a payment service, a credit lender, auction house, publisher and so on, and to understand just how ill-equipped current antitrust law was to deal with such a multi-faceted entity......a Columbia Law Review paper out in May 2019 will explores the case for separating the ownership of technology platforms from the commercial activity they host, so that Big Tech firms cannot both run a dominant marketplace and compete on it. via a host of old cases — from railroad antitrust suits to the separation of merchant banking and the ownership of commodities — to argue that “if you are a form of infrastructure, then you shouldn’t be able to compete with all the businesses dependent on your infrastructure”....“The new Brandeis movement isn’t just about antitrust,” .... Rather, it is about values. “Laws reflect values,” she says. “Antitrust laws used to reflect one set of values, and then there was a change in values that led us to a very different place.”

21st._century  Amazon  antitrust  Big_Tech  digital_economy  financial_crises  FTC  lawyers  Lina_Khan  monopolies  multifaceted  paradoxes  platforms  policymakers  predatory_practices  Rana_Foroohar  regulators  Robert_Bork  Tim_Wu  wunderkind  Yale  values  value_judgements 
march 2019 by jerryking
Why further financial crises are inevitable
March 19, 2019 | Financial Times | Martin Wolf.

We learnt this month that the US Fed had decided not to raise the countercyclical capital buffer required of banks above its current level of zero, even though the US economy is at a cyclical peak. It also removed “qualitative” grades from its stress tests for American banks, though not for foreign ones. Finally, the Financial Stability Oversight Council, led by Steven Mnuchin, US Treasury secretary, removed the last insurer from its list of “too big to fail” institutions.

These decisions may not endanger the stability of the financial system. But they show that financial regulation is procyclical: it is loosened when it should be tightened and tightened when it should be loosened. We do, in fact, learn from history — and then we forget.....Regulation of banks has tightened since the financial crises of 2007-12. Capital and liquidity requirements are stricter, the “stress test” regime is quite demanding, and efforts have been made to end “too big to fail” by developing the idea of orderly “resolution” of large and complex financial institutions.....Yet complacency is unjustified. Banks remain highly leveraged institutions.....history demonstrates the procyclicality of regulation. Again and again, regulation is relaxed during a boom: indeed, the deregulation often fuels that boom. Then, when the damage has been done and disillusionment sets in, it is tightened again........We can see four reasons why this tends to happen: economic, ideological, political and merely human.

* Economic
Over time the financial system evolves. There is a tendency for risk to migrate out of the best regulated parts of the system to less well regulated parts. Even if regulators have the power and will to keep up, the financial innovation that so often accompanies this makes it hard to do so. The global financial system is complex and adaptable. It is also run by highly motivated people. It is hard for regulators to catch up with the evolution of what we now call “shadow banking”.

* Ideological
the tendency to view this complex system through a simplistic lens. The more powerful the ideology of free markets, the more the authority and power of regulators will tend to erode. Naturally, public confidence in this ideology tends to be strong in booms and weak in busts.

* Political

the financial system controls vast resources and can exert huge influence. In the 2018 US electoral cycle, finance, insurance and real estate (three intertwined sectors) were the largest contributors, covering one-seventh of the total cost. This is a superb example of Mancur Olson’s Logic of Collective Action: concentrated interests override the general one. This is much less true in times of crisis, when the public is enraged and wants to punish bankers. But it is true, again, in normal times.

Borderline or even blatant corruption also emerges: politicians may even demand a share in the wealth created in booms. Since politicians ultimately control regulators, the consequences for the latter, even if they are honest and diligent, are evident.

A significant aspect of the politics is closely linked to regulatory arbitrage: international competition. One jurisdiction tries to attract financial business via “light-touch” regulation; others then follow. This is frequently because their own financiers and financial centres complain bitterly. It is hard to resist the argument that foreigners are cheating.

* Human
There is a human tendency to dismiss long-ago events as irrelevant, to believe This Time is Different and ignore what is not under one’s nose. Much of this can be summarised as “disaster myopia”. The public gives irresponsible policymakers the benefit of the doubt and enjoys the boom. Over time, regulation degrades, as the forces against it strengthen and those in its favour corrode.

The cumulative effect of these efforts is quite clear: regulations erode and that erosion will be exported. This has happened before and will do so again. This time, too, is not different.
boom-to-bust  bubbles  collective_action  complacency  corruption  disaster_myopia  entrenched_interests  economic_downturn  financiers  financial_crises  financial_innovation  financial_regulation  financial_system  historical_amnesia  Mancur_Olson  Martin_Wolf  policymakers  politicians  politics  procyclicality  regulatory_arbitrage  regulation  regulators  stress-tests  This_Time_is_Different  U.S._Federal_Reserve 
march 2019 by jerryking
Bolts from the blue test our fragile systems

Resilience, a spokesman told me, was “built into the design”, just not enough resilience to soak up that one-off lightning strike, the original metaphor for everything that seems vanishingly unlikely to happen. Until it does.......Resilience used to be a low priority but only after the 9/11 attacks violently woke all Manhattan businesses and residents to the potential shortcomings of their back-up plans. For a time, we had our own family resilience plan, complete with pre-determined emergency meeting points, and supplies of duct tape, bottled water and canned food. Likewise, it took the financial crisis to galvanise many banks, regulators and governments to think about how to respond to, and protect against, previously unimagined threats. All this prepping for uncertainty and change is, of course, positive. But it is also easier than resolving some of the wider pressures that make resilience training essential......our obsession with efficiency.....has made economies more productive, cut poverty and improved living standards. has also become “the god that we worship unthinkingly”. Efficiency has led to (over)consolidation. Such monocultures are fragile and vulnerable to calamities.....resilient workers are better able to respond to such changes.....but deep down organisations might be hoping that their newly flexible, gritty managers & staff serve in the vanguard of another push for efficiency, without due regard to the system’s safety......Roger Martin’s solutions to such global weaknesses involve adding more friction to the system, from the top down. They include rules to oblige investors to hold stocks for longer, more active antitrust policies, and targeted trade barriers. This would require a degree of intervention and co-ordination that may be beyond most governments.....organisations cannot afford unlimited insurance. ....But in too many places, too many people are running a single, consolidated system, with little or no resilience.
co-ordinated_approaches  resilience  fragility  9/11  concentration_risk  efficiencies  disasters  disaster_preparedness  financial_crises  monocultures  Roger_Martin  rule-writing  top-down  uncertainty  unexpected  frictions 
june 2018 by jerryking
On the money: a history of the Bank of England
SEPTEMBER 1, 2017 by: John Plender, the FT columnist and author of ‘Capitalism: Money, Morals and Markets’ (Biteback)

Till Time’s Last Sand: A History of the Bank of England 1694-2013, by David Kynaston, Bloomsbury £35, 896 pages
An enduring theme is the friction that existed from the outset between the Bank and its main client, the government. The Bank’s original charter was granted so that it could provide finance for the Nine Years’ War against France. On each renewal, the terms were the subject of much haggling and in the interim the Bank was constantly pressed to advance more money than it felt prudent. ....Another constant theme is forgery and fraud, with some of the Bank’s most senior employees being caught with their fingers in the till. In marked contrast to today’s post-crisis financial world, punishment was harsh. Many miscreants were hanged at Tyburn while the lucky ones were condemned to transportation.

As the 19th century progresses, Kynaston’s story turns increasingly on the issue that preoccupied great Victorian writers on monetary policy such as Henry Thornton and Walter Bagehot: how to reconcile adherence to the gold standard with financial stability. Numerous financial crises, including those surrounding the rescue of Barings and the collapse of Overend Gurney and the City of Glasgow Bank, are retold here with panache.
Bank_of_England  history  central_banks  book_reviews  books  monetary_policy  slavery  Walter_Bagehot  financial_history  19th_century  Victorian  financial_crises 
september 2017 by jerryking
Yale to Build Tool Offering Real-Time Lessons on Financial Crises -
May 9, 2017 | WSJ | By Gabriel T. Rubin.

Yale University will launch an online platform to provide real-time support to policy makers dealing with financial crises, with the help of a $10 million gift from business leaders and philanthropists Bill Gates, Jeff Bezos, Bloomberg Philanthropies and the Peter G. Peterson Foundation.

The gift represents a major expansion of the Yale Program on Financial Stability, a degree-granting program in the university’s school of management that aims to train early- and midcareer financial regulators from around the globe.

The new resources will support a small staff of researchers, led by Professor Andrew Metrick, as they build a database of “lessons from hundreds of interventions from past crises,” the university said. The effort is the first of its kind, according to Yale, and reflects a need for more research on “wartime” situations, rather than the preventive sort of regulatory research done by central banks around the world. Central banks often avoid extensive crisis preparations out of reluctance to promote moral hazard, leaving policy makers to reinvent the wheel each time a new crisis arises.....Mr. Geithner, who serves as the chairman of the Program on Financial Stability, said that he and other policy makers would have been able to act faster and with greater confidence during the financial crisis with access to the tools that Mr. Metrick’s team will build.

“There were probably four or five periods when the crisis was escalating, the panic was spreading, sitting on the phone for 20 hours a day trying to figure out how to do things,” Mr. Geithner recalled. “And we hadn’t had to do some of those things since the Great Depression. That took us a lot of time, and that can be costly.”

The open online platform will include descriptions of specific interventions—for example, the use of a “bad bank” to hold distressed assets—and will detail what did and didn’t work well in each case.
Yale  Colleges_&_Universities  crisis  regulators  Walter_Bagehot  central_banks  real-time  databases  lessons_learned  policy_tools  Peter_Peterson  reinventing_the_wheel  policymakers  confidence  economic_downturn  decision_making  speed  the_Great_Depression  crisis_management  crisis_response  Tim_Geithner  moral_hazards  financial_crises 
may 2017 by jerryking
How to avert catastrophe
January 21, 2017 | FT | Simon Kuper.

an argument: people make bad judgments and terrible predictions. It’s a timely point. The risk of some kind of catastrophe — armed conflict, natural disaster, and/or democratic collapse — appears to have risen. The incoming US president has talked about first use of nuclear weapons, and seems happy to let Russia invade nearby countries. Most other big states are led by militant nationalists. Meanwhile, the polar ice caps are melting fast. How can we fallible humans avert catastrophe?

• You can’t know which catastrophe will happen, but expect that any day some catastrophe could. In Tversky’s words: “Surprises are expected.” Better to worry than die blasé. Mobilise politically to forestall catastrophe.
• Don’t presume that future catastrophes will repeat the forms of past catastrophes. However, we need to expand our imaginations. The next catastrophe may take an unprecedented form.
• Don’t follow the noise. Some catastrophes unfold silently: climate change, or people dying after they lose their jobs or their health insurance. (The financial crisis was associated with about 260,000 extra deaths from cancer in developed countries alone, estimated a study in The Lancet.)
• Ignore banalities. We now need to stretch and bore ourselves with important stuff.
• Strengthen democratic institutions.
• Strengthen the boring, neglected bits of the state that can either prevent or cause catastrophe. [See Why boring government matters November 1, 2018 | | Financial Times | Brooke Masters.
The Fifth Risk: Undoing Democracy, by Michael Lewis, Allen Lane, RRP£20, 219 pages. pinboard tag " sovereign-risk" ]
• Listen to older people who have experienced catastrophes. [jk....wisdom]
• Be conservative. [ conservative, be discerning, be picky, be selective, say "no"]
Simon_Kuper  catastrophes  Nassim_Taleb  black_swan  tips  surprises  imagination  noise  silence  conservatism  natural_calamities  threats  unglamorous  democratic_institutions  slowly_moving  elder_wisdom  apocalypses  disasters  disaster_preparedness  emergencies  boring  disaster_myopia  financial_crises  imperceptible_threats 
january 2017 by jerryking
BlackRock’s Aladdin: genie not included -
July 11, 2014 | FT |By Tracy Alloway.
(Risk management technology is no substitute for investor instinct)
Aladdin is BlackRock's current, state of the art risk and order management system. Aladdin has been described as BlackRock’s “central nervous system” but what is less well-known is that the operating platform also acts as the brains at some 60 other financial firms which altogether handle a whopping $14tn worth of assets.

At banks, investment managers and trading outfits around the world, Aladdin’s genie is hard at work analysing portfolios, running stress test scenarios and generally employing BlackRock’s “collective intelligence” to perform a whole host of financial functions....the increasingly significant role that Aladdin and its 25m lines of code plays in the wider financial markets has, with notable exceptions, largely been overlooked....The role of these formulas or programs tends to go unnoticed but they often play two key roles in the build-ups to financial crises. Firstly they give investors and traders a potentially dangerous sense of control over risk. Second, as their use proliferates, they also encourage a build-up of “one-way” bets as investors increasingly come to rely on similar data and analysis.
BlackRock  Laurence_Fink  asset_management  pretense_of_knowledge  long-term  risk-management  Wall_Street  collective_intelligence  systemic_risks  order_management_system  algorithms  platforms  Aladdin  stress-tests  overconfidence  overlooked  false_confidence  scenario-planning  financial_crises 
july 2014 by jerryking
Ride to the rescue of workers
Aug. 15 2007 | The Globe and Mail | JIM STANFORD. Economist with the Canadian Auto Workers Union

So imagine how surprised I was at the bank's rapid, powerful interventions into financial markets recently, issuing more than $4-billion in new low-cost loans in just three trading days to soothe frazzled nerves and keep the easy-credit machine out of the ditch. And it signalled in no uncertain terms there was plenty more where that came from.

Far from sitting back watching the economy "adjust to change," this drama featured the central bank as cavalry - charging over the hill just as the hedge-fund artists were making their last stand. Seems the prospect of bankrupt speculators tossed onto the street, forced to find real work, isn't the kind of change the bank has in mind. Now, don't get me wrong: What the bank did was prudent and important....This selective, one-sided approach to stabilization speaks volumes about the nature of the bank as an institution, and the biases of the inflation-targeting regime it espouses so passionately. The Bank of Canada is not a neutral, prescient team of technocrats, guiding us to some imaginary point of maximum efficiency. Like any other political body, its opinions and actions reflect value judgments about the relative importance of differing, sometimes conflicting, goals and interests. Job creation versus inflation control. Consumer inflation versus stock-market inflation. Financial troubles versus industrial troubles.

So, Governor Dodge, please carry on with your dramatic rescue mission. Just spread a little of that rescue around to the rest of us next time.
bailouts  Bank_of_Canada  biases  bubbles  business-government_relations  CAW  central_banks  economists  financial_crises  financial_markets  institutions  Jim_Stanford  layoffs  manufacturers  pairs  politics  tradeoffs  values  value_judgements 
june 2012 by jerryking
The Spirit of Enterprise -
December 1, 2011

Nations like Germany and the U.S. are rich primarily because of shared habits, values and social capital....People who work hard and play by the rules should have a fair shot at prosperity. Money should go to people on the basis of merit and enterprise. Self-control should be rewarded while laziness and self-indulgence should not. Community institutions should nurture responsibility and fairness.

This ethos is not an immutable genetic property, which can blithely be taken for granted. It’s a precious social construct, which can be undermined and degraded.

Right now, this ethos is being undermined from all directions. People see lobbyists diverting money on the basis of connections; they see traders making millions off of short-term manipulations; they see governments stealing money from future generations to reward current voters.

The result is a crisis of legitimacy. The game is rigged. Social trust shrivels. Effort is no longer worth it. The prosperity machine winds down....The real lesson from financial crises is that, at the pit of the crisis, you do what you have to do. You bail out the banks. You bail out the weak European governments. But, at the same time, you lock in policies that reinforce the fundamental link between effort and reward. And, as soon as the crisis passes, you move to repair the legitimacy of the system.

That didn’t happen after the American financial crisis of 2008.
David_Brooks  Europe  moral_hazards  euro_zone  European_Union  bailouts  values  social_capital  social_fabric  social_cohesion  covenants  legitimacy  social_trust  social_contract  laziness  self-indulgence  self-control  self-discipline  self-regulation  undermining_of_trust  gaming_the_system  locked_in  financial_crises 
december 2011 by jerryking
Off the Shelf - ‘Fault Lines’ Concludes Global Economy Remains Vulnerable -
July 31, 2010 | NYT | By NANCY F. KOEHN reviews “Fault Lines:
How Hidden Fractures Still Threaten the World Economy” by Raghuram G.
Rajan who concludes that the financial crisis erupted “because in an
integrated economy and in an integrated world, what is best for the
individual actor or institution is not always best for the system.” Like
geological fault lines, the fissures in the world economic sys. are
more hidden and widespread than many realize. And they are potentially
more destructive than other culprits, e.g greedy bankers, sleepy
regulators and irresponsible borrowers. Rajan, a finance prof at the U.
of Chicago and former chief economist at the IMF argues that the
actions of these players (and others) unfolded on a larger worldwide
stage, that is subject to the imperatives of political economies. He
cites 3 fault lines: domestic political stresses; trade imbalances among
countries; and the tensions produced when financial sys. with very
different structures interact.
book_reviews  economic_downturn  financial_crises  crisis  threats  interconnections  interdependence  books  systemic_risks  vulnerabilities  fault_lines  hidden  latent  regulators  uChicago  global_economy  imbalances 
august 2010 by jerryking
The Unwisdom of Crowds
12/22/2008 | The Weekly Standard Vol. 014, Issue 14 | by
Christopher Caldwell. Financial panics still require what Walter
Bagehot prescribed--that practical men violate their own principles.
Common sense is often not much use in a financial panic. This was the
great discovery of Walter Bagehot, the prolific 19th-century essayist
and journalist, who was editor of the Economist from 1860 to 1877. (His
name rhymes with gadget.) in the so-called Anglo-Saxon world, Bagehot's
book still provides the bedrock of policy thinking during financial
emergencies, including our present one.
bailouts  banking  banks  capitalism  economics  economy  finance  financial_crises  financial_history  financial_journalism  panics  policymaking  politicaleconomy  prolificacy  Walter_Bagehot 
october 2009 by jerryking
Central Banks Are Creatures of Financial Crises
JANUARY 27, 2009 WSJ op-ed by JUSTIN LAHART provides an
overview of three centuries of central-banking history. Central banks
have been built on financial crises, with each major tremor expanding
their role. And today's economic convulsions foreshadow more changes to
come at the Fed.
backward_looking  central_banks  crisis  economics  economists  financial  financial_history  foreshadowing  institutions  U.S._Federal_Reserve  Walter_Bagehot  financial_crises 
january 2009 by jerryking

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