financial crises and bubbles

 

look up economic depression in developed economy 

look up revolution (start with French revolution)

   transition from Monarchy 

1630

1636 

 •── The Dutch Tulip Bulb Bubble 1636 *$$

      ── big financial bubble 

      ── https://en.wikipedia.org/wiki/Tulip_mania

1637

 •── 1637: Bursting of tulip mania in the Netherlands – while tulip mania is popularly reported as an example of a financial crisis, and was a speculative bubble, modern scholarship holds that its broader economic impact was limited to negligible, and that it did not precipitate a financial crisis.

      ── https://en.wikipedia.org/wiki/Financial_crisis

1640

1650

1660

1670

1680

1690

1700

1710

1720

 •── The South Sea Bubble 1720 *$$

      ── big financial bubble 

      ── https://en.wikipedia.org/wiki/South_Sea_Company

 •── The Mississippi Bubble 1720 *$$

      ── big financial bubble 

      ── https://en.wikipedia.org/wiki/Mississippi_Company#Mississippi_Bubble

 •── 1720: Bursting of South Sea Bubble (Great Britain) and Mississippi Bubble (France) – earliest of modern financial crises; in both cases the company assumed the national debt of the country (80–85% in Great Britain, 100% in France), and thereupon the bubble burst. The resulting crisis of confidence probably had a deep impact on the financial and political development of France.[47]

      ── https://en.wikipedia.org/wiki/Financial_crisis

1730

1740

1750

1756–1763

 •── the immense debt accrued through the French involvement in the Seven Years' War (1756–1763)

1760

1770

1775–1783

 •── the immense debt accrued through the French involvement in the American Revolution (1775–1783).

1776

 •── War of American Independence Financing Crisis (1776) (United States) – 

      ── The French monarchy went deeply into debt to finance its 1.4 billion livre support for the colonial rebels; Spain invested 700 million reales.[2] 

      ── https://en.wikipedia.org/wiki/List_of_economic_crises

1780

1783–1788

 •── France's Financial and Debt Crisis (1783–1788)- France severe financial crisis due to the immense debt accrued through the French involvement in the Seven Years' War (1756–1763) and the American Revolution (1775–1783).

      ── https://en.wikipedia.org/wiki/Financial_crisis

1790

1800

1810

1820

1830

1840

1850

1860

1870

 ── Otto von Bismarck

      ── „In 1870, however, Prussian leader Otto von Bismarck provoked France's Napoleon III to declare war. Bismarck used the conflict to unify Germany, defeating France, and creating the state that would loom so large over the first half of the 20th century.“, p.68, Harry Henderson, The age of Napoleon, 1999

 

1873–1896

 •── Great Depression of British Agriculture

      ── https://en.wikipedia.org/wiki/Great_Depression_of_British_Agriculture

      ── https://en.wikipedia.org/wiki/List_of_economic_crises

1873–1896

 •── long depression 

      ── https://en.wikipedia.org/wiki/Long_Depression

      ── https://en.wikipedia.org/wiki/List_of_economic_crises

1880

 •── Berlin, and German investors had been caught up in international railroad speculation mania in the 1880s., p.14, William Engdahl, A century of war: Anglo-American oil politics and the new world order, 1992, 2004. 

1890

 •── huge losses in Argentine bond speculation and investment

      ── near failure of the prestigious London merchant bank, Baring Brothers

      ── ties of German banking to this Argentine speculation

      ── a Berlin bank panic ensured

      ── the dominoes of an international financial pyramid began to topple. 

      ── the crash of the elite Baring Bros., with some $75,000,000 invested in various Argentine bonds

      ── p.14, William Engdahl, A century of war: Anglo-American oil politics and the new world order, 1992, 2004. 

1891

 •── In the wake of the financial collapse of Argentina, a large wheat exporter to Europe, Berlin grain traders Ritter & Blumenthal had foolishly attempted to ‘corner’ on the entire German wheat market, planning to capitalize on the consequences of the financial troubles in Argentina.  This only aggravated the financial panic in Germany as their scheme collapsed, bankrupting in its wake the esteemed private banking house of Hirschfeld & Wolf, and causing huge losses at the Rheinisch-Westphaelische Bank, further triggering a general run on German banks and a collapse of the Berlin stock market, lasting into the autumn of 1891.

     ── pp.14-15, William Engdahl, A century of war: Anglo-American oil politics and the new world order, 1992, 2004. 

1896

 •── German exchange act of 1896 (germany) 

     ── established definitively a different form of organization of finance and banking in Germany from that of Britain or America──Anglo-Saxon banking. 

     ── Not only this, but many London financial houses reduced their activity in the restrictive German financial market after the 1890s as a result of these restrictions, lessening the influence of City of London finance over German economic policy. 

     ── Significantly, to the present day, these fundamental differences between Anglo-Saxon banking and finance, and a ‘German model’ as largely practiced in Germany, Holland, Switzerland and Japan, are still somewhat visible.3 

     ── p.15, William Engdahl, A century of war: Anglo-American oil politics and the new world order, 1992, 2004. 

     ── 

1900

1910

1914

 ── Financial crisis of 1914

     ── The European liquidation of American securities in 1914 (also called the financial crisis of 1914) was the selloff of about $3 billion (equivalent to $81.16 billion in 2021) of foreign portfolio investments at the start of World War I, taking place at the same time as the broader July Crisis of 1914. Together with loans to finance the Allied war effort, made by J.P. Morgan and others, the liquidation of European-held securities transformed the United States from a debtor nation to a creditor nation for the first time in its history.[1]

     ──  For ... months the stock market remained closed to prevent the sale of British-held American securities. 

     ── https://en.wikipedia.org/wiki/Financial_crisis_of_1914

1914

 ──  Britain declared war on Germany on August 4, 1914

1914─1918 the Great war (later renamed to World war I) 

 ── In fact, America prospered because of the war. American farmers sold wheat, cotton, and other crops to both the Allies and the Central Powers. American factories sold guns, ammunition, and other war supplies to both sides., p.45, Zachary Kent, World War I : the war to end wars, 1994. (World War I : the war to end wars / Zachary Kent., 1. world war, 1914-1918--juvenile literature., [1. world war, 1914-1918.], D521.K35  1994, 940.3--dc20, 1994, ) 

1920

1929

 •── Wall street crash of 1929 

      ── https://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929

      ── 

      ── https://en.wikipedia.org/wiki/List_of_economic_crises

1929–1939

 •── great depression 

      ── the worst depression of modern history (developed countries?) 

      ── https://en.wikipedia.org/wiki/Great_Depression

      ── https://en.wikipedia.org/wiki/List_of_economic_crises

1927

 •── The late 1920s stock price bubble 1927–1929 *$$

      ── big financial bubble 

  ── u.s. only? 

1930

1939

 ── In September 1939, Hitler invaded Poland, setting loose the Second World War twenty years after Germany's crushing defeat in the First., p.161, Russell Freedman, The war to end all wars: world war I, 2010 , (The war to end all wars: world war I / by Russell Freedman., 1. world war, 1914-1918--juvenile literature., D522.7.F74   2010, 940.3--dc22,  )

     ── 

1940

 ── World war II    1941-1945    4,104 billion (Constant FY2011 $)*††

1944─1945   Bretton Wood Monetary Conferences

 ── July 1944

 ── Mount Washington Hotel, Carroll, New Hampshire

 ── representatives of 44 countries

 ── set the gold standard at $35 an ounce

 ── chose the American dollar as the backbone of international exchange.

 ── the Bretton Woods Conferences established  the World Bank and the International Monetary Fund (IMF)

 ── These two organizations were later instrumental in rebuilding both the European and Japanese infrastructures. 

 ── World Bank 

     ── the International Bank for Reconstruction and Development ── reflects its original mission: the last part, “development”, was added almost as an afterthought. 

1950

 ── Korea    1950-1953      341 billion (Constant FY2011 $)*††

June 25, 1950:  North Korea invades South Korea (the forgotton war)

     ── additional defense spending for war in Korea 

1950

Vietnam War:  began November 1, 1955 ── ended April 30, 1975

     Result:  North Vietnamese victory

     source:  https://www.bing.com/search?q=vietnam+war

         ── Vietnam    1965-1975      739 billion (Constant FY2011 $)*††

1960

 ── Vietnam    1965-1975      739 billion (Constant FY2011 $)*††

     ── during the American-Vietnam war, underlying U.S. economic condition + war debt put the value of u.s. dollar under pressure, the flight of foreign reserve to exchange the their dollar for gold, president Richard Nixon administration dropped the gold the standard before other countries, following France and England, exchanged their dollar reserve holding for gold, and adopted fiat monetary policy. 

     ── August 15, 1971, the ability to exchange US dollar for gold suspended, p.108, George Soros, The new paradigm for financial markets, 2008 

     ── fiat monetary policy (dropping the gold standard) led to the "boom and bust" cycle 

1966    Japan, Asian Development Bank in 1966

1974

 •── In The Dollar Crisis, Richard Duncan attributed the 1974 petrodollar recycling mechanism to the “first boom-and-bust crisis of the post-Bretton Woods [Monetary Conference] era.”46, p.22   (pdf - page 43/289), Petrodollar warfare : oil, Iraq and the future of the dollar, William R. Clark, 2005.

      ── [these excess flow of USD would later result in unsustainable debt in banks, and international lending schemes ]

      ── en.wikipedia.org 

         ── look up 1974 petrodollar recycling mechanism

         ── put it here 

         ── 

1970

 •── The surge in bank loans to Mexico and other developing countries in the 1970s *$$

      ── big financial bubble 

1971

 ── Vietnam war

      ── August 15, 1971, the ability to exchange US dollar for gold suspended, p.108, George Soros, The new paradigm for financial markets, 2008 

1973─1979

 •── explosion of international credit between 1973 and 1979

        first oil shock, recycling of petro-dollar, 

        Euro-dollar market, p.110, George Soros, The new paradigm for financial markets, 2008 

      ── lead to big debt crisis  

1980

 •── the international banking crisis of the 1980s, p.64, George Soros, The new paradigm for financial markets, 2008.   

 •── In 1982, Chile got into a major banking crisis, following the radical financial market liberalization in the mid-1970s under the Pinochet dictatorship *†††

      ── On September 11, 1973, Augusto Pinochet rose to power, overthrowing the democratically elected president Salvador Allende. 

          ── President Richard Nixon and the CIA had been involved in the overthrow of Salvador Allende, the elected leader of Chile. "Complementing the CIA effort, the US government exerted economic pressure on Chile, again to no avail. A second approach, entirely under CIA auspices, encouraged a military coup. President Richard Nixon directed that neither the Departments of State and Defense nor the US Ambassador to Chile be informed of this undertaking."

              ── https://spartacus-educational.com/JFKturnerStan.htm

1980

 •── late 1980s, the Saving and Loans (S&L) companies in the US got into massive troubles, *††† 

1982

 •── The international lending spree of the 1970s

      turned into the international banking crisis in 1982, p.116, George Soros, The new paradigm for financial markets, 2008 

 •── In 1982, Chile got into a major banking crisis, following the radical financial market liberalization in the mid-1970s under the Pinochet dictatorship *†††

1985–1989

 •── The bubble in real estate and stocks in Japan 1985–1989 *$$

      ── big financial bubble 

 ── https://en.wikipedia.org/wiki/Black_Monday_(1987)

1986–1992

 •── Japanese asset price bubble 

      ── https://en.wikipedia.org/wiki/Japanese_asset_price_bubble

      ── https://en.wikipedia.org/wiki/List_of_economic_crises

1985–1989

 •── The 1985–1989 bubble in real estate and stocks in Finland, Norway and Sweden *$$

      ── big financial bubble 

1990

 ── Persian gulf war    1990-1991      102 billion (Constant FY2011 $)*††

1990

 •── The surge in foreign investment in Mexico 1990–1993 *$$

      ── big financial bubble 

      ── 

      ── 

1991   Germany, European Bank for Reconstruction and Development in 1991

1992

 •── The bubble in real estate and stocks in Thailand, Malaysia, Indonesia

and several other Asian countries 1992–1997 *$$

      ── big financial bubble 

1993   

 •── the bond rally of 1993 had indeed been a bubble, p.444, Sebastian Mallaby., The Man Who Knew: the life and times of Alan Greenspan, 2016.

      ── u.s. bond market?  

      ── bond market in other countries 

1994─1995 

 •── Then there was the ‘tequila’ crisis in Mexico in 1994 and 1995. *†††

1994 ??

 •── Banker Trust scandal., Charles Sanford, p.469, Sebastian Mallaby., The Man Who Knew: the life and times of Alan Greenspan, 2016.

1995

 ── Bankers trust 

     ── In 1995, litigation by two major corporate clients against Bankers Trust shed light on the market for over-the-counter derivatives. Bankers Trust employees were found to have repeatedly provided customers with incorrect valuations (lies - breach of trust)  of their derivative exposures.[35] 

     ──: "The only way the CFTC found out about the Bankers Trust fraud was because Procter & Gamble, and others, filed suit. There was no record keeping requirement imposed on participants in the market. There was no reporting. We had no information." -Brooksley Born, US CFTC Chair, 1996-'99.[36]

     ── Several Bankers Trust brokers were caught on tape remarking that their client [Gibson Greetings and P&G, respectively] would not be able to understand what they were doing in reference to derivatives contracts sold in 1993. As part of their legal case against Bankers Trust, Procter & Gamble (P&G) "discovered secret telephone recordings between brokers at Bankers Trust, where 'one employee described the business as 'a wet dream,' ... another Bankers Trust employee said, '...we set 'em up.'"[36]

     ── The bank's row with P&G made the front page of major US magazines during 1995. 

     ──  On October 16, 1995, the US magazine BusinessWeek published a cover story that P&G was pursuing racketeering charges against Bankers Trust: "The key evidence: some 6,500 tape recordings."[37]

     ── Both the magnitude of losses and the litigation by well-known companies caused market regulators to intervene. 

     ── The thesis of an October 20, 2009, broadcast of the PBS television magazine Frontline, Early Warnings of the Economic Meltdown, was that the failure of Congress to allow CFTC a role in regulating derivatives was a key element eventually leading to the financial crisis of 2007–2010.

     ── 

     ── https://en.wikipedia.org/wiki/Bankers_Trust#Controversies

1997

 ── 1997 Asian financial crisis 

     ── https://en.wikipedia.org/wiki/1997_Asian_financial_crisis

1997

 •── The bubble in real estate and stocks in Thailand, Malaysia, Indonesia

and several other Asian countries 1992–1997 *$$

      ── big financial bubble 

 •── This was followed by crisises in the ‘miracle’ economies of Asia ─ Thailand, Indonesia, Malaysia and South Korea ─ in 1997, which had resulted from their financial opening up and deregulation in the late 1980 and the early 1990s. *††† 

1998

 •── On the heels of the Asian crisis came the Russian crisis of 1998. *†††

1998

 ── 1998 Russian financial crisis

     ── The Russian financial crisis (also called the ruble crisis or the Russian flu) began in Russia on 17 August 1998. It resulted in the Russian government and the Russian Central Bank devaluing the ruble and defaulting on its debt. The crisis had severe impacts on the economies of many neighboring countries.

     ── https://en.wikipedia.org/wiki/Long-Term_Capital_Management

     ── https://en.wikipedia.org/wiki/1998_Russian_financial_crisis

1998

 ── Long-Term Capital Management L.P. (LTCM) was a highly leveraged hedge fund. In 1998, it received a $3.6 billion bailout from a group of 14 banks, in a deal brokered and put together by the Federal Reserve Bank of New York.[1]

     ── The company consisted of Long-Term Capital Management (LTCM), a company incorporated in Delaware but based in Greenwich, Connecticut. LTCM managed trades in Long-Term Capital Portfolio LP, a partnership registered in the Cayman Islands. The fund's operation was designed to have extremely low overhead; trades were conducted through a partnership with Bear Stearns and client relations were handled by Merrill Lynch.[11]

     ── Meriwether chose to start a hedge fund to avoid the financial regulation imposed on more traditional investment vehicles, such as mutual funds, as established by the Investment Company Act of 1940—funds which accepted stakes from 100 or fewer individuals each with more than $1 million in net worth were exempt from most of the regulations that bound other investment companies.[12] The bulk of the money raised, in late 1993, came from companies and individuals connected to the financial industry.[13] With the help of Merrill Lynch, LTCM also secured hundreds of millions of dollars from high-net-worth individual including business owners and celebrities, as well as private university endowments and later the Italian central bank. By 24 February 1994, the day LTCM began trading, the company had amassed just over $1.01 billion in capital.[14]

     ── John Quiggin's book Zombie Economics (2010) states, "These derivatives, such as interest rate swaps, were developed with the supposed goal of allowing firms to manage risk on exchange rates and interest rate movements. Instead, they allowed speculation on an unparalleled scale."[18]

     ── In 1998, the chairman of Union Bank of Switzerland resigned as a result of a $780 million loss incurred from the being short put options on LTCM, which had become significantly in-the-money due to LTCM's collapse.[3]

     ── https://en.wikipedia.org/wiki/Long-Term_Capital_Management

1990 

 •── The bubble in real estate and stocks in Finland, Norway and Sweden *$$

      ── 1985–1989 bubble in real estate and stocks

      ── big financial bubble 

 •── the 1990s started with banking crisis in Sweden, Finland and Norway, following their financial deregulation in the late 1980s, *††† 

      ── financial deregulation in the last 1980s in Sweden, Finland and Norway

      ── 1985–1989 bubble in real estate and stocks in Sweden, Finland and Norway

      ── banking crisis in Sweden, Finland and Norway 

  ── The Sweden financial crisis 1990–1994 was a housing bubble that took place in Sweden that deflated during 1991 and 1992, and resulted in a severe credit crunch and widespread bank insolvency. Similar crises took place in other countries around the same time, such as in Finland and the Savings and loan crisis in the United States. The causes of the crisis were similar to those of the subprime mortgage crisis of 2007–2008. In response, the government took the following actions:[1]

      ── https://en.wikipedia.org/wiki/Sweden_financial_crisis_1990%E2%80%931994

1995

 •── The bubble in over-the-counter stocks in the United States 1995–2000 *$$

      ── big financial bubble 

1999 

 •── The Brazilian crisis followed in 1999 *†††

2000

 •── Internet Bubble in late 2000.

      ── https://en.wikipedia.org/wiki/Dot-com_bubble

 ── https://en.wikipedia.org/wiki/Commodity_Futures_Modernization_Act_of_2000

2001

 ── September 11, 2001:  Building 1, 2, 7 world trade center

                         Pentagon

                         Pennsyvania field 

 ── https://en.wikipedia.org/wiki/War_games_in_progress_on_September_11,_2001

                     ──  Able danger 

                         https://en.wikipedia.org/wiki/Able_Danger

                     ──  Able Danger was a classified military planning effort led by the U.S. Special Operations Command (SOCOM) and the Defense Intelligence Agency (DIA). It was created as a result of a directive from the Joint Chiefs of Staff in early October 1999 by Chairman of the Joint Chiefs of Staff Hugh Shelton, to develop an information operations campaign plan against transnational terrorism.

                     ──  The program used data mining techniques to associate open source information with classified information in an attempt to make connections among individual members of terrorist groups as part of its original "intelligence preparation of the battlespace". The objective of this particular project was to ascertain whether the data mining techniques and open source material were effective tools in determining terrorist activities, and if the resultant data could be used to create operational plans that could be executed in a timely fashion to interrupt, capture and/or destroy terrorists or their cells.[7][8]

                     ──  link analysis 

                     ──  1993 World Trade Center bombing.[9]

                     ──  Pentagon's Land Warfare Analysis Department

2001─2007  prelude to the 2008 Financial crisis

           for the insider 2006 was the start of the financial crisis

2005─2007  peak period of market activities before the 2008 drop off the cliff

2002 

 ── and the Argentinian one in 2002, both in part the results of financial deregulation. *†††

2003

 ── Iraq    2003-2010      784 billion (Constant FY2011 $)*††

2005─2007  peak period of market activities before the 2008 drop off the cliff

2007─2008

 ── 2007–2008 world food price crisis

     ── https://en.wikipedia.org/wiki/2007%E2%80%932008_world_food_price_crisis

2007─2008

 ── Financial crisis of 2007-2008

     ── https://en.wikipedia.org/wiki/Financial_crisis_of_2007–2008

United States of America (economic sector)

  5 investment banks

     - goldman sachs

     - morgan stanley

     - lehman brothers (RIP)

     - merrill lynch (part of Bank of America)

     - bear stearns (RIP)

  2 financial conglomerates

     - citigroup

     - jp morgan

  3 security insurance companies

     - AIG

     - MBIA

     - AMBAC

  3 rating agencies

     - moody's

     - standard & poor's

     - fitch

40 trillion dollars in credit defalt swap (oh, there is going to be a crash)*$

2008 September  Fannie Mae and Freddie Mac is placed into custodianship

                September of 2008, Fannie Mae and Freddie Mac were both placed into conservatorship of the Federal Housing Finance Agency (FHFA), which put Fannie Mae and Freddie Mac under direct government control. Today, the role of Fannie Mae and Freddie Mac has not changed very much.

2010

 ── Afghanistan/other    2010-2010      321 billion (Constant FY2011 $)*††

 ── total post-9/11──Iraq, Afghanistan/other   2010-2010    1,147 billion (Constant FY2011 $)*††

2015    China, Asian Infrastructure Investment Bank [in 2015 - operational]

2020

 ── https://en.wikipedia.org/wiki/2020_stock_market_crash

additional sources: 

                https://www.usatoday.com/story/money/2019/06/13/cost-of-war-13-most-expensive-wars-in-us-history/39556983/

 *†† ── Costs of Major U.S. Wars

     ── congressional research service 

     ── June 29, 2010

     ── Table 1. Military Costs of Major U.S. Wars, 1775-2010

     ── https://sgp.fas.org/crs/natsec/RS22926.pdf

 *$  ── The Biggest Bank Heist Ever! | HD

     ── https://www.youtube.com/watch?v=BuyrBRUsu9A

     ── https://www.youtube.com/watch?v=BuyrBRUsu9A

     ── Uploaded on Feb 13, 2012

*$$ Charles Kindleberger's book with Robert Z. Aliber; 

    Manias, Panics, and Crashes: A History of Financial Crises;  

    5th edition, 2005  

    1978, 1989, 1996, 2000; 

     p.9 

     The big ten financial bubbles

      1. The Dutch Tulip Bulb Bubble 1636 *$$

      2. The South Sea Bubble 1720 *$$

      3. The Mississippi Bubble 1720 *$$

      4. The late 1920s stock price bubble 1927–1929 *$$

      5. The surge in bank loans to Mexico and other developing countries in the 1970s *$$

      6. The bubble in real estate and stocks in Japan 1985–1989 *$$

      7. The 1985–1989 bubble in real estate and stocks in Finland, Norway and Sweden *$$

      8. The bubble in real estate and stocks in Thailand, Malaysia, Indonesia

and several other Asian countries 1992–1997 *$$

      9. The surge in foreign investment in Mexico 1990–1993 *$$

     10. The bubble in over-the-counter stocks in the United States 1995–2000 *$$

   (Charles Kindleberger, Robert Z. Aliber, Manias, Panics, and Crashes: A History of Financial Crises, 5th edition, 2005, )

   ____________________________________

*†††

Ha-Joon Chang, Economics : the user's guide, 2014

pp.222-223

   In 1982, Chile got into a major banking crisis, following the radical financial market liberalization in the mid-1970s under the Pinochet dictatorship *†††

   late 1980s, the Saving and Loans (S&L) companies in the US got into massive troubles, *††† 

   the 1990s started with banking crisis in Sweden, Finland and Norway, following their financial deregulation in the late 1980s, *††† 

   Then there was the ‘tequila’ crisis in Mexico in 1994 and 1995. *†††

   This was followed by crisises in the ‘miracle’ economies of Asia ─ Thailand, Indonesia, Malaysia and South Korea ─ in 1997, which had resulted from their financial opening up and deregulation in the late 1980 and the early 1990s. *††† 

   On the heels of the Asian crisis came the Russian crisis of 1998. *†††

   The Brazilian crisis followed in 1999 *†††

and the Argentinian one in 2002, both in part the results of financial deregulation. *†††

first published 2014

this paperback edition published 2015 

Ha-Joon Chang, Economics : the user's guide, 2014

   ____________________________________

https://en.wikipedia.org/wiki/List_of_stock_market_crashes_and_bear_markets

https://en.wikipedia.org/wiki/Economic_bubble

https://en.wikipedia.org/wiki/Bankruptcy_of_Lehman_Brothers

https://www.corpwatch.org/article/us-10-enron-players-where-they-landed-after-fall

https://en.wikipedia.org/wiki/Subprime_mortgage_crisis

https://en.wikipedia.org/wiki/Case–Shiller_index

https://en.wikipedia.org/wiki/United_States_housing_bubble

https://publicintegrity.org/topics/inequality-poverty-opportunity/finance/whos-behind-the-financial-meltdown/

list of financial crises

   en.wikipedia.org

     https://en.wikipedia.org/wiki/List_of_banking_crises

     https://en.wikipedia.org/wiki/Financial_crisis

     https://en.wikipedia.org/wiki/List_of_economic_crises

     https://en.wikipedia.org/wiki/Financial_crisis_of_1914

     https://en.wikipedia.org/wiki/1997_Asian_financial_crisis

   ____________________________________

Howard W. French., Everything under the heavens : how the past help shape China's push for global power, 2017. 

p.279

to create a new global or regional economic and political institutional arrangements 

United States, World Bank in 1944; 

Japan, Asian Development Bank in 1966; 

Germany, European Bank for Reconstruction and Development in 1991; 

China, Asian Infrastructure Investment Bank 

   (Everything under the heavens : how the past help shape China's push for global power / Howard W. French., first edition. | New York : Alfred A. Knopf, [2017] | China──foreign relations──21st century.| China──foreign relations──Asia.|Asia──foreign relations──China.|strategic culture──China.|geopolitics──Asia., LCC JZ1734.F74  2017| DDC 327.51──dc23, https://lccn.loc.gov/2016021957, 2017, )

   ____________________________________

Simon Head, Mindless : why smarter machines are making dumber humans, 2014  [ ] 

p.80

The US government──J. K. Galbraith's “countervailing power”──which might have set limits on the machine's operations, was in fact actively working on the machine's behalf. 

p.80

mortgage-backed securities (MBSs)

underwrote the subprime mortgages, bundled them together, and passed them on to investment bankers as mortgage-backed securities (MBSs); 

collateralized debt obligations (CDOs) 

p.80

Simon Johnson and James Kwak, their book Thirteen Bankers

p.81

foundations, universities, pension funds, midwestern school districts, German regional banks, all very big losers once the MBSs and CDOs went bad. 

p.82

Finally, the value-at-risk (VAR) indexes pioneered by Professor Philippe Jorion of the University of California were heavily relied on to assess the risk of CDOs. 

   (Mindless : why smarter machines are making dumber humans / Simon Head., 1. technology──social aspects., 2. business──data processing──psychological aspects., 3. industries──technological innovations──psychological aspects., 4. ──Mental efficiency., 5. knowledge management., T14.5.H445  2013, 303.48'3──dc23, 2014, )

   ____________________________________

Table 1. Military Costs of Major U.S. Wars, 1775-2010

                                                        (Constant FY2011 $)

                     American revolution    1775-1783        2,407 million

                             war of 1812    1812-1815        1,553 million 

                             Mexican war    1846-1849        2,376 million 

                        Civil war: union    1861-1865       59,631 million

                   Civil war: confederacy   1861-1865       20,111 million

                    Spanish american war    1898-1899        9,034 million 

                             World war I    1917-1921      334 billion     

                            World war II    1941-1945    4,104 billion 

                                   Korea    1950-1953      341 billion 

                                 Vietnam    1965-1975      739 billion *††

                        Persian gulf war    1990-1991      102 billion *††

                                    Iraq    2003-2010      784 billion *††

                       Afghanistan/other    2010-2010      321 billion *††

 total post-9/11──Iraq, Afghanistan/other   2010-2010    1,147 billion *††

──

Sources: All estimates are of the costs of military operations only and do not reflect costs of veterans’ benefits, interest on war-related debt, or assistance to allies. Except for costs of the American Revolution and the Civil

War costs of the Confederacy, all estimates are based on U.S. government budget data. Current year dollar estimates of the costs of the War of 1812 though World War II represent the increase in Army and Navy outlays during the period of each war compared to average military spending in the previous three years. For the Civil War costs of the Confederacy, the estimate is from the Statistical Abstract of the United States, 1994. For the American Revolution, the estimate is from an unofficial financial history of the United States published in 1895.  For the Korean War, the estimate represents increased expenditures of the DOD during the period of the conflict compared to the projected trend from the average of three years before the war to three years after.  For the Vietnam War and the Persian Gulf War, figures are DOD estimates of the incremental costs of operations, meaning the costs of war-related activities over and above the regular, non-wartime costs of defense.  For operations since September 11, 2001, through FY2009, figures reflect CRS estimates of amounts appropriated to cover war-related costs. For FY2010, figures are DOD estimates of war-related appropriations.  The current-year dollar estimates are converted to constant prices using estimates of changes in the consumer price index for years prior to 1940 and using Office of Management and Budget and DOD estimates of defense Costs of Major U.S. Wars Congressional Research Service 3 inflation for years thereafter. The CPI estimates used here are from a data base maintained at Oregon State University. The data base periodically updates figures for new official CPI estimates of the U.S. Department of Commerce.

 *†† ── Costs of Major U.S. Wars

     ── congressional research service 

     ── June 29, 2010

     ── Table 1. Military Costs of Major U.S. Wars, 1775-2010

     ── https://sgp.fas.org/crs/natsec/RS22926.pdf

──

https://sgp.fas.org/crs/natsec/RS22926.pdf

https://sgp.fas.org/crs/natsec/RS22926.pdf

   ____________________________________

Sebastian Mallaby., The Man Who Knew: the life and times of Alan Greenspan, 2016

42.  “Had AIG been building derivatives exposures on-exchange rather than in the OTC markets, its reckless speculation would have been brought to a halt much earlier owing to minute-by-minute exposure tracking in the clearing house and unambiguous mark-to-market and margining rules.”  See Benn Steil, “Derivatives Clearing houses: Opportunities and Challenges”:  prepared statement by Dr. Benn Steil before the committee on banking, housing, and urban affairs; subcommittee on securities, insurance, and investment, May 25, 2001. (date??)

   (The Man Who Knew: the life and times of Alan Greenspan / Sebastian Mallaby.

New York: Penguin Press, 2016., “A council on foreign relations book.”, subjects: Greenspan, Alan, 1926─ | Economists──united states──biography. | government economists──united states──biography.| monetary policy ── united states. | board of governors of the federal reserve system (u.s.), HB119.G74 M35 2016 (print), HB119.G74 (ebook), 332.1/1092 [B]──dc23, https://lccn.loc.gov/2016017300, 2016, )

   ____________________________________

William R. Clark, Petrodollar warfare, 2005                                 [ ]

p.20  (pdf - page 41/289)

David Spiro's book, The Hidden Hand of American Hegemony

pp.20-21  (pdf - page 41/289)

   In typical understatement Spiro noted that, “clearly something more than the laws of supply and demand ... resulted in 70 percent of all Saudi assets in the United States being held in a New York Fed account.”42

40.  David E. Spiro, The Hidden Hand of American Hegemony:  Petrodollar recycling and International Markets, Cornell university press, 1999, pp. 121-123.

41.  Ibid, p. x.

42.  Ibid, p. 125.

p.21  (pdf - page 42/289)

   In May 1973, with the dramatic fall of the dollar still vivid, a

   group of 84 of the world's top financial and political insiders met

   at Saltsjobaden, Sweden, the seclude island resort of the Swedish

   Wallenberg banking family. This gathering of [the] Bilderberg

   group heard an American participant, Walter Levy, outline a ‘scenario’

   for an imminent 400 percent increase in OPEC petroleum

   revenues. The purpose of the secret Saltsjobaden meeting WAS NOT

   TO PREVENT THE EXPECTED OIL PRICE SHOCK, BUT RATHER TO PLAN HOW TO MANAGE

   THE ABOUT-TO-BE-CREATED FLOOD OF OIL DOLLARS, a process US Secretary

   of State Kissinger later called ‘recycling the petrodollar flows.’

   [emphasis added]

                       -- F. William Engdahl, A Century of War43

p.21  (pdf - page 42/289)

   Engdahl's remarkable book, A Century of War, chronicled how certain geopolitical events mirrored a “scenario” discussed during a May 1973 Bilderberg meeting. Apparently powerful banking interests sought to “manage” the monetary dollars flows that were premised upon what the group envisioned as “huge increases” in the price of oil from the Middle East. The minutes of this Bilderberg meeting included projections of OPEC oil prices increasing by 400 percent.44

   In 1974 US Assistant Treasury Secretary Bennett and David Mulford of the London-based Eurobond firm of White Weld & Co. set about the mechanism to handle the surplus OPEC petrodollars.45  Kissinger, Bennett, and Mulford helped orchestrate the secret financial arrangement with SAMA that creatively transformed the high oil prices of 1973-1974 to the direct benefit of the US Federal Reserve Banks and the Bank of England.

Saudi Arabia Monetary Authority (SAMA) 

 

p.22  (pdf - page 43/289)

   Saudi Arabia and the other OPEC producers deposited their surplus dollars in US and UK banks, which then took these OPEC petrodollars and re-lent them as Eurodollar bonds or loans, to governments of developing countries desperate to borrow dollars to finance their oil imports. While beneficials to the US- and UK-based financial centers, the buildup of these petrodollar debts  by the late 1970s facilitated the basis for the developing world's debt crisis of the early 1980s. Hundreds of billions of dollars were recycled between OPEC, the London and New York banks, and back to developing countries.

p.22  (pdf - page 43/289)

   In The Dollar Crisis, Richard Duncan attributed the 1974 petrodollar recycling mechanism to the “first boom-and-bust crisis of the post-Bretton Woods [Monetary Conference] era.”46

[these excess flow of USD would later result in unsustainable debt in banks, and international lending schemes ]

   (Petrodollar warfare : oil, Iraq and the future of the dollar, William R. Clark, 2005, )

   ____________________________________

list of financial crisis

en.wikipedia.org ?? 

   ____________________________________

Sebastian Mallaby., More money than god : hedge funds and the making of a new elite, 2010.   

p.79

Charles Mackay's Extraordinary Popular Delusions and the Madness of Crowds

 • The trouble with [Benoit] Mandelbrot's insight was that it was too awkward to live with; it rendered the statistical tools of financial economics useless, since the modeling of abnormal distributions was a problem largely unsolved in mathematics.

pp.104-105

The efficient-market hypothesis had always been based on a precarious assumption:  the price changes conformed to a “normal” probability distribution ── the one represented  by the familiar bell curve, in which numbers at and near the median crop up frequently while numbers in the tails distribution are rare to the point of vanishing.  Even in the early 1960s, a maverick mathematician named Benoit Mandelbrot argued that the tails of the distribution might be fatter than the normal bell curve assumed; and Eugene Fama, the father of efficient-market theory, who got to know Mandelbrot at the time, conducted tests on stock-price changes that confirmed Mandelbrot's assertion.  If price changes had been normally distributed, jumps greater than five standard deviations should have shown up in daily price data about once every 7,000 years.  Instead, they cropped up about once every three to four years. 

   Having made this discovery, Fama and his colleagues buried it.  The trouble with Mandelbrot's insight was that it was too awkward to live with; it rendered the statistical tools of financial economics useless, since the modeling of abnormal distributions was a problem largely unsolved in mathematics.

p.105

Paul Cootner, complained that “Mandelbrot, like Prime Minister Churchill before him, promises us not utopia but blood, sweat, toil and tears. If he is right, almost all of our statistical tools are obsolete ── least squares, spectral analysis, workable maximum-likelihood solutions, all our established sample theory, closed distribution functions. Almost without exception, past econometric work is meaningless.”66  

p.105

To prevent itself from toppling into this intellectual abyss, the economics profession kept its eyes trained the other way, especially since the mathematics of normal distributions was generating stunning breakthroughs.  

p.105

In 1973 a trio of economists produced a revolutionary method for valuing options, and a thrilling new financial industry was born.  Mandelbrot's objections were brushed off. 

p.105

   The crash of 1987 forced the economics profession to reexamine that assertion. 

p.105

To put that probability into perspective, it meant that an event such as the crash would not be anticipated to occur even if the stock market were to remain open for twenty billion years, the upper end of the expected duration of the universe, 

p.106

   As well as challenging the statistical foundation of financial economists' thinking, Black Monday forced a reconsideration of their institutional assumptions. 

p.106

In the chaos of the market meltdown, brokers' phone lines were jammed with calls from panicking sellers; it was hard to get through and place an order. 

p.106

And, most important, the sheer weight of selling made it too risky to go against the trend.  When the whole world is selling, it doesn't matter whether sophisticated hedge funds believe that prices have fallen too far.  Buying is crazy. 

   At a minimum, it seemed, the efficient-market hypothesis did not apply to moments of crisis. 

pp.106-107

But the crash raised a further question too:  If markets were efficient, why had the equity bubble inflated in the first place?  Again, the answer seemed to lie partly in the institutional obstacles faced by speculators.  In the summer of 1987, investors could see plainly that stocks were selling for higher multiples of corporate earnings than they had historically; but if the market was determined to value them that way, it would cost money to buck it. 

   (More money than god : hedge funds and the making of a new elite / Sebastian Mallaby.,  1. hedge funds., 2. investment advisors.,  HG4530.M249  2010, 332.64'524──dc22, 2010, )

   ____________________________________

[p.117]

from Fooled by Randomness

     David Hume, John Stuart Mill

     Black swan problem:  No amount of observations of white swans can allow the inference that all swans are white, but the observation of a single black swan is sufficient to refute that conclusion. 

     (Taleb, Nassim (2004)., Fooled by Randomness, 2nd edition, paperback)

(Fooled by Randomness: the hidden role of chance in life and in the markets / Nassim Nicholas Taleb, 1. investments, 2. chance, 3. random variables, 123.3 Taleb, p.117)

   ____________________________________

[p.32, pp.33-34]

     [p.32] 

      Mediocristan

     "When your sample is large, no single instance will significantly change the aggregate or the total.

     [pp.33-34]

     "In Extremistan, inequalities are such that one single observation can disproportionately impact the aggregate, or the total.

     "... This is the main idea of this book."

     (Taleb, Nassim (2007)., The Black swan, copyright © 2007) 

(The Black swan: the impact of the highly improbably / Nassim Nicholas Taleb., 

1. uncertainty (information theory)--social aspects., 2. forecasting., p.32, pp.33-34)

   ____________________________________

Note 73

p.314

       Another criticism is that the model-based approach to equity requirements focuses on probabilities rather than potential losses. Equity requirements for market risk are given by three times the amount needed to cover any losses that might occur with 99 per cent probability. The size of losses that might occur with the remaining probability of 1 per cent or less is not considered. This approach betrays a remarkable confidence in our ability to assess probabilities, and a remarkable lack of concern for the potentially disasterous consequences that might arise from large losses in one of those so-called tail events that are neglected.

   (The bankers' new clothes : what's wrong with banking and what to do about it, by Anat Admanti and Martin Hellwig, © 2013, p.314)

   ____________________________________

[pp.xvii-xviii]

Three attributes, characteristics or properties, of Black swan, also known as RARE EVENT.

Black swan define:

   1. [Black swan] lies outside of regular expectations, because nothing in the past can convincingly point to its possibility.

   2. [Black swan] carries an extreme impact.

   3. In spite of Black swan outlier status, human nature makes us concoct explanations for its occurrence AFTER the fact, making it explainable and predictable. 

     (Taleb, Nassim (2007)., The Black swan, copyright © 2007) 

(The Black swan: the impact of the highly improbably / Nassim Nicholas Taleb., 

1. uncertainty (information theory)--social aspects., 2. forecasting., pp.xvii-xviii)

   ____________________________________

Nassim Nicholas Taleb, The Black swan, 2007                                 [ ] 

To Benoit Mandelbrot,

a Greek among Romans

     (Taleb, Nassim (2007)., The Black swan, copyright © 2007) 

(The Black swan: the impact of the highly improbably / Nassim Nicholas Taleb., 

1. uncertainty (information theory)--social aspects., 2. forecasting., )

   ____________________________________

p.19  QMJ 94 Fall

   The most creative part of Deming's 5th Tokyo lecture was his use of another series of sampling experiments that he carried out in class.  Deming used them to illustrate features and properties of control charts and important strategies for dealing with data from real processes.  In these experiments Deming employed three bowls of numbered chips.   

  Bowl A contained the “original distribution”, which was somewhat of a normal distribution in the spirit of “Shewhart's bowl” (Shewhart 1931). 

  Bowl B contained a modification of the original distribution with a shift upward in the mean, and 

  bowl C had a modification of the original distribution, but with a larger variance.  

By having students draw samples at random from these bowls, plot the data, compute control limits, and so on, Deming illustrated very concretely the ability of the control charts 

(1) to project control limits ahead from relatively short historical data sets; and 

(2) to detect rather rapidly shifts in both the mean and the variance of the process. 

   Deming also used this example to highlight the importance of not mixing data from sources that are known to be different, a priori.  He called this “stratification” of data, and it would, in later years, become a key principle among Japanese quality control experts.  For example, see Ishikawa (1976).  Deming went on to emphasize that “the control chart is no substitute for the brain”; he asked students to “write it down big” so they wouldn't forget it.  He cautioned them to imagine in advance what the sources of variation might be, and to attempt to plan how to collect data, and then plot the control charts to discover if variation exists. 

“”─

source:

        what deming told the Japanese in 1950 

        DeminginJapanin1950.pdf

        Peter J. Kolesar, Columbia university

        QMJ 94 Fall 

        

The primary source documents are the published lecture transcripts that Deming considered authentic. 

The transcripts how that Deming introduced to the Japanese a product design cycle of Shewhart that is distinct from the management process that the Japanese later came to call the plan-do-check-act cycle. 

   ____________________________________

   ____________________________________

Ha-Joon Chang., Bad samaritans: the myth of free trade and the secret history of capitalism, 2008

pp.208-209

The outcome was the 1997 financial crisis.  So my imaginary China story is really a combination of what actually happened in Japan in the 1980s and Korea in the 1990s. 

    (Chang, Ha-Joon., HF1713.C5185 2008, 382.71--dc22, copyright © 2008)

(Bad samaritans: the myth of free trade and the secret history of capitalism / Ha-Joon Chang., 1. free trade, 2. capitalism, )

   ____________________________________

Joseph E. Stiglitz, Globalization and its discontents revisited, 2018, 2002 

p.178

“labor market flexibility” 

simply a code name for lower wages, and less job protection. 

p.192

I believe that capital account liberalization was the single most important factor leading to the crisis.  I have come to this conclusion not just by carefully looking at what happened in the region, but by looking at what happened in the almost one hundred other economic crises of the last quarter century.  Because economic crises have become more frequent (and deeper), there is now a wealth of data through which one can analyze the factors contributing to crises.7  It has also become increasingly clear that all too often capital account liberalization represents risk without a reward. 

p.193

As an academic, I was shocked that the IMF and the U.S. Treasury would push this agenda with such force, in the face of a virtual absence of theory and evidence suggesting that it was in the economic interests of either the developing countries or global economic stability ── and in the presence of evidence to the contrary.  Surely, one might have argued, there must be some basis for their position, beyond serving the naked self-interest of financial markets, which saw capital market liberalization as just another form of market access ── more markets in which to make more money.  

p.194

the data showed that capital flows were pro-cyclical. 

That is to say that capital flows out of a country in a recession, precisely when the country needs it most, and flows in during a boom, exacerbating inflationary pressures.  Sure enough, just as the time the countries needed outside funds, the bankers asked for their money back. 

p.194

It also knew that throughout the world speculative real estate lending is a major source of economic instability. 

Joseph E. Stiglitz, Globalization and its discontents revisited, 2018, 2002 

   ____________________________________

George Soros, The new paradigm for financial markets, 2008 

this book (biblio) has no index

p.xiv

   The crisis was slow in coming, but it could have been anticipated several years in advance. ([??])

pp.xiv-xv

It had its origins in the bursting of the Internet bubble in late 2000.  The Fed responded by cutting the federal funds rate from 6.5 per cent to 3.5 per cent within the space of just a few months.  Then came the terrorist attack of September 11, 2001. ([??])

p.xv

   Cheap money engendered a housing bubble, an explosion of leveraged buyouts, and other excesses. 

p.xv

They also created structured investment vehicles (SIVs) to keep their own positions off their balance sheets. 

p.xviii

By far the largest synthetic market is constituted by credit default swaps (CDSs). 

p.xix

collateralized mortgage obligations (CMOs) 

p.xix

Former Federal Reserve governor Edward M. Gramlich privately warned Federal Reserve Chairman Alan Greenspan about abusive behavior in the subprime mortgage markets in 2000, but the warning was swept aside. 

p.xix

Gramlich went public with his worries in 2007 and published a book on the subprime bubble just before the crisis first broke. 

p.xix

Charles Kindleberger

Nouriel Roubini 

p.xxi

June 15, 2007 

   The failure of the two Bear Stearns mortgage hedge funds in June badly rattled the markets, but U.S. Federal Reserve Chairman Ben Bernanke and other senior officials reassured the public that the subprime problem was an isolated phenomenon. 

pp.xxi

Investment banks carried large positions of CDOs off balance sheet in so-called structured investment vehicles (SIVs).  The SIVs financed their positions by issuing asset-backed commercial paper. 

p.xxii

Investment banks were also sitting on large loan commitments to finance leveraged buyouts.

collateralized loan obligations (CLOs) 

p.xxii

A few highly leveraged ones were wiped out, damaging the reputation of their sponsors and unleashing lawsuits. 

p.xxii

They had difficulty assessing their exposure and even greater difficulties estimating the exposure of their counter-parts. 

p.xxiii

they had lost control of their balance sheets.

p.xxiii

This was unprecedented. 

p.xxiii

   Distress spread from residential real estate to credit card debt, auto debt, and commercial real estate. 

p.xxiv

international lending crisis of the 1980s

saving and loan crisis of the early 1990s

p.xxiv

One cannot escape the conclusion that both the financial authorities and market participants harbor fundamental misconceptions about the way financial markets function. 

p.xxiv

   I shall argue that the global financial system has been built on false premises.  This would be a shocking proposition except for the even more shocking proposition that misconceptions characterize not only financial markets but all human constructs. 

p.xxiv

   In Part 1, I shall lay out the conceptual framework in terms of which the functioning of financial markets can be understood.  In Part 2, I shall apply that framework to the present moment in history. 

p.10

People base their decisions not on the actual situation that confronts them but on their perception or interpretation of that situation.  Their decisions make an impact on the situation (the manipulative function), and changes in the situation are liable to change their perceptions (the cognitive function).  The two functions operate concurrently, not sequentially. 

p.11

They can affect the course of events──the future is influenced by their decisions──but they cannot base their decisions on knowledge.  They are obliged to form a view of the world, but that view cannot possibly correspond to the actual state of affairs.  Whether they recognize it or not, they are obliged to act on the basis of beliefs which are not rooted in reality.  Misinterpretations of reality and other kinds of misconceptions play a much bigger role in determining the course of events than generally recognized.  That is the main new insight that the theory of reflexivity has to offer. 

p.11

I learned at an early age how ideologies based on false premises can transform reality.  I also learned that there are times when the normal rules do not apply, and the abnormal becomes normal. 

p.18

In particular, I could apply my theory of reflexivity to establish a disequilibrium scenario or boom-bust pattern for financial markets.  The rewarding part came when market enter what I called far-from-equilibrium territory because that is when the generally accepted equilibrium models broke down.

pp.18-19

I specialized in detecting and playing far-from-equilibrium situations with good results. 

p.19

This led to my first published book, The Alchemy of Finance (1987), in which I expounded my approach.  I called it alchemy to emphasize that my theory does not meet the currently prevailing requirements of scientific method. 

p.19

I used to suffer from backaches and other psychosomatic ailments, and I received as many useful signals from my backaches as from my theory.  Nevertheless, I attributed great importance to my philosophy and particularly my theory of reflexivity.  Indeed, I considered it so significant, treasured it so much, that I found it difficult to part with it by putting it in writing and publishing it. 

p.19

As I belabored the points, my arguments became more and more covoluted until I reached a point when I could not understand what I had written the night before. 

p.20

At the same time, some readers could look through my faulty rhetoric and appreciate the ideas that lay behind them.  That was particularly true for people engaged in the financial markets, where my demonstrated success led them to look for the reason behind it, and the obscurity of my formulations added to their fascination.  My publisher anticipated this and refrained from editing my manuscript.  He wanted the book to be the subject of a cult.  To this day  The Alchemy of Finance  is read by market participants, taught in business schools, but totally ignored in departments of economics. 

pp.20-21

He quoted my son Robert:

   My father will sit down and give you theories to explain 

   why he does this or that. But I remember seeing it as a 

   kid and thinking, Jesus Christ, at least half of this is bullshit.

   I mean, you know the reason he changes his position

   on the market or whatever is because his back starts

   killing him. It has nothing to do with reason. He literally 

   goes into a spasm, and it's this early warning sign. 

      If you're around him a long time, you realize that to a 

   large extent he is driven by temperament. But he is always

   trying to rationalize what are basically his emotions. 

   And he is living in a constant state of not exactly 

   denial, but rationalization of his emotional state. And it's 

   very funny.* 

*Quoted in Michael Kaufman, Soros: The Life and Times of a Messianic Billionaire (New York: Alfred A. Knopf, 2002), 140.

p.21

   I harbored grave doubts myself.  Although I took my philosophy very seriously, I was not at all certain that what I had to say deserved to be taken seriously by others.  I knew that it was significant for me subjectively, but I was uncertain about its objective worth for others. 

p.21

The theory of reflexivity deals with a subject──the relationship between thinking and reality──that philosophers had been discussing for ages. 

p.21

I felt obliged to keep on explaining my philosophy because I felt it was not properly understood.  All my books followed the same pattern.  

p.22

I was trying to answer the question, how could the propaganda techniques described in Orwell's 1984 be so successful in contemporary America?  After all, in 1984 Big Brother was watching you; there was a Ministry of Truth and an apparatus of repression to take care of dissidents.  In contemporary America there is freedom of thought and pluralistic media.  Yet the Bush administration managed to mislead the people by using Orwellian Newspeak. 

p.22

Until then I had taken it for granted that Orwellian Newspeak could prevail only in a closed society like Orwell's 1984. 

p.22

His [Karl Popper] argument hinged on the unspoken assumption that political discourse aims at a better understand of reality.  But the concept of reflexivity asserts that there is such a thing as the manipulative (formerly participating) function, and political discourse can be successfully used to manipulate reality. 

pp.22-23

That is appropriate for a social scientist whose aim is the acquisition of knowledge, but not for a politician whose primary purpose is to get elected and to stay in power. 

p.23

Enlightenment fallacy, which assumes that the purpose of reason is to produce knowledge. 

p.28

I drew a distinction between thinking and reality, whereas what I wanted to say was that thinking is part of reality. 

p.28

I found myself talking about a two-way connection between the course of events and the participants' thinking.  That left out a two-way connection between the thinking of the various participants. 

p.28 

There is a two-way interconnection between ‘the events that happen in the world’ and the ‘the people thinking about the events’.

There is a two-way interconnection between ‘what happen’ and ‘the people thinking about it’. 

There is also a two-way interconnection between the thinking of each pair of participants.  

([ delusion, delusional, mass delusion, mass illusion, theory of deception, mass deception, self-deception ])

p.28

objective aspects of reality (the course of events), 

subjective aspects of reality (participants' thinking)

p.28

The direct interpersonal relations among participants are more likely to be reflexive than the interaction between perceptions and events because events take longer to unfold. 

p.29

Even in the financial markets demonstrably reflexive processes occur only intermittently.  On a day-by-day basis markets seem to follow certain statistical rules, but occasionally those rules are broken.  We may therefore distinguish between humdrum, everyday events that are statistically predictable, and reflexive processes that are not.  The latter are of great significance because they alter the course of history.

p.29

There are many historic events, such as earthquakes, that are not reflexive. 

p.30

Their primary concern is the cognitive function; insofar as the manipulative function interferes with the proper functioning of cognition, they are inclined to ignore it or to deliberately eliminate it from consideration.  

p.30

That is how the assumption of perfect knowledge morphed into the theory of rational expectations──a make believe world that bears no resemblance to reality. 

p.31

I tried to show a two-way interconnections between the participants' thinking and the situation in which they participate, but Western intellectual tradition went out of its way to separate thinking and reality. 

pp.35-36

p.36

Popper's scheme removes the need for verification by treating scientific laws as provisionally valid until and unless they have been falsified.  

p.36

Generalizations that cannot be falsified do not qualify as scientific.  This interpretation remphasizes the central role that testing plays in scientific method. 

‘’“”──

p.58

   In The Alchemy of Finance I cite many examples of boom-bust processes or bubbles form the financial markets.  

p.58

The short circuit may take the form of equity leveraging, that is, the issue of additional shares at inflated prices, but more commonly it involves the leveraging of debt.  Most but not all cases involve real estate, commercial or residential, where the willingness to lend influences the value of the collateral.  In the international banking crisis of the 1980s the short circuit occurred in sovereign borrowing; no collateral was involved, but the banks' willingness to lend affected the so-called debt ratios which determined the countries' ability to borrow. 

p.59

the conglomerate boom that unfolded in the late 1960s.

It started when the managements of some high-techology companies specializing in defense recognized that the prevailing growth rate their companies enjoyed could not be sustained in the aftermath of the Vietnam War.  Companies such as Textron, LTV, and Teledyne started to use their relatively high-priced stock to acquire more mundane companies, and, as their per-share earnings growth accelerated, their price-earning multiples, instead of contracting, expanded.  They were the path breakers. 

pp.59-60

   Investors responded like pigs at the trough.  At first, the record of each company was judged on its own merit, but gradually conglomerates became recognized as a group.  A new breed of investors emerged: the early hedge fund managers, or gunslingers.  They developed direct lines of communication with the managements of conglomerates, and conglomerates placed so-called letter stock directly with fund managers.  

p.60

selling stock at inflated valuations, can generate earnings growth.

pp.60-61

   Multiples expanded, and eventually reality could not sustain expectations.  More and more people became aware of the misconception on which the boom rested even as they continued to play the game.  To maintain the momentum of earnings growth, acquisitions had to be larger and larger, and eventually conglomerates ran into the limits of size.  The turning point came when Saul Steinberg of the Reliance Group sought to acquire Chemical Bank:  It was fought and defeated by the white shoe establishment of the time. 

   When the stock prices started to fall, the decline fed on itself.  As the overvaluation diminished, it became impractical to make new acquisitions.  The internal problems that had been swept under the carpet during the period of rapid external growth began to surface.  Earnings reports revealed unpleasant surprises.  Investors became disillusioned, and conglomerate managements went through their own crises:  After the heady days of success, few were willing to buckle down to the drudgery of day-to-day management.  As the president of one corporation told me: “I have no audience to play to.”  The situation was aggravated by a recession, and many of the high flying conglomerates literally disintegrated.  Investors were prepared to believe the worst, and for some companies the worst occurred.  For others, reality turned out to be better than expectations, and eventually the situation stabilized.  The surviving companies, often under new management, slowly worked themselves out from under the debris.  

p.61

real estate investment trusts, or REITs.

Their key feature is that if they disburse more than 95 percent of their income, they can distribute it free of corporate taxation. 

The opportunity created by this legislation remained largely unexploited until 1969, when numerous mortgage trusts were founded. 

p.61

I published a research report, where I argued that the conventional method of security analysis does not apply.

p.62

   I then sketched out a drama in four acts.  It starts with an overvaluation of the early mortgage trusts that allows them to justify the overvaluation by issuing additional shares at inflated prices; then come the imitators, who destroy the opportunity.  The scenario ends in widespead bankruptcies. 

p.62

The report found a tremendous response, the extent of which I realized only when I received a telephone call from a bank in Cleveland asking for a fresh copy of my report because theirs had gone through so many Xerox machines that it was no longer legible. 

p.63

Subsequent events took the course outlined in the report.  Mortgage trusts enjoyed a boom that was not as violent as the one that came after the publication of my report, but it turned out to be more enduring. 

p.63

But I was sufficiently carried away by my own success to be caught holding an inventory of shares when the downdraft came. 

p.63

I continued to follow the industry closely for a year or so and eventually sold my holdings, realizing good profits.  Then I lost touch with the group until a few years later when the problems began to surface. 

p.63

When I became aware of them I was tempted to establish short positions, but I was handicapped because I was no longer familiar with the companies.  Nevertheless, when I reread the report I had written several years earlier, I found it so convincing that I decided to sell the group short more or less indiscriminately.  

p.63

My original prediction was fulfilled, and most mortgage trusts went broke.  

p.63

The result was that I reaped more than 100 percent profit on my short positions──a seeming impossibility since the maximum profit on a short position is 100 per cent. (The explanation is that I kept on selling additional shares.) 

p.64

the international banking crisis of the 1980s

p.65

The first country to run into severe difficulties was Mexico, which was an oil producing country. (Hungary preceded it but the problem was contained.)  Since the international banking crisis of the 1980s, I have witnessed several real estate bubbles in Japan, Britain, and the United States.  The misconception can manifest itself in different guises, but the principle is always the same.  What is amazing is that it keeps recurring. 

pp.65-66

In the intial stage (1) the trend is not yet recognized.  Then comes the period of acceleration (2), when the trend is recognized and reinforced by prevailing bias.  That is when the process approaches far-from-equilibrium territory.  A period of testing (3) may intervene when prices suffer a setback.  If the bias and trend survive the testing, both emerge stronger than ever, and far-from-equilibrium conditions, in which the normal rules no longer apply, become firmly established (4).  Eventually there comes a moment of truth (5), when reality can no longer sustain the exaggerated expectations, followed by a twilight period (6), when people continue to play the game although they no longer believe in it.  Eventually a crossover point (7) is reached, when the trend turns down and the bias is reversed, which lead to a catastrophic downward acceleration (8), commonly known as the crash. 

p.70

Consequently market prices usually express a prevailing bias rather than the correct valuation.  In the majority of cases, the valuations are proven wrong by subsequent evidence, and the bias is corrected, only to be replaced by a different bias. 

p.71

occasionally mistakes prove to be self-validating, setting in motion vicious or virtuous circles. 

p.72

Regular patterns arise only on those rare occasions when a particular process is so powerful that it overshadows all the others.  Perhaps I did not make this point sufficiently clear in  The Alchemy of Finance. 

p.74

They use scientific method to manipulate reality, not to understand it. 

p.74

As I have shown in my discussion of the human uncertainty principle, social situation can be influenced by making statements about them.  In other words, they can be manipulated.  

p.75

Once we recognize that reality can be manipulated, our first priority ought to be to prevent the manipulative function from interfering with the pursuit of knowledge. 

p.76

To be specific, financial markets cannot predict economic downturns accurately, but they can cause them. 

p.76

The divergence provides useful feedback on the basis of which they can adjust their behavior. 

p.76

Bubbles often lead to financial crises.  Crises, in turn, lead to the regulation of financial markets.  That is how the financial system has evolved──periodic crises leading to regulatory reforms. 

p.77

Where market fundamentalists are totally wrong is in claiming that regulations ought to be abolished on account of their fallibility. 

p.77

The fact that regulators are fallible does not prove the markets are perfect.  It merely justifies reexamining and improving the regulatory environment. 

p.78

my preliminary hypothesis is that there has to be both some form of credit or leverage and some kind of misconception or misinterpretation involved for a boom-bust process to develop. 

p.81

the international banking crisis of 1982, the savings and loan crisis of 1986, the portfolio insurance debacle of 1987, the failure of Kidder Peabody in 1994, the emerging market crisis of 1997, the failure of Long Term Capital Management in 1998, the technology bubble of 2000. 

p.82

United Kingdom, Spain, and Australia. 

pp.82-83

p.82

the Federal Reserve lowered the federal funds rate to 1 percent and kept it there until June 2004. This allowed a housing bubble to develop in the United States.  Similar bubbles could be observed in other parts of the world, notably the United Kingdom, Spain, and Australia.  

p.82

What sets the United States housing bubble apart from the others is its size and importance for the global economy and the international financial system.  The housing market turned down earlier in Spain than in the United States, but that passed unnoticed, except locally. 

pp.82-83

By contrast, U.S. mortgage securities have been widely distributed all over the world with some European, particularly German, institutional holders even more heavily involved than American ones. 

p.83

prevailing misconception that the value of the collateral was not affected by the willingness to lend. 

p.83

p.83

institutional holders 

p.91

The Fed is constrained in its ability to protect the economy by the fact that it has done it too often.  

pp.91-92

It consists of an excessive reliance on the market machanism.

President Ronald Reagan called it the magic of the marketplace. 

I called it market fundamentalism. 

It was called laissez-faire in the 19th century. 

p.92

The fact that state intervention is always flawed does not make markets perfect. 

p.92

Financial markets do not necessarily tend towards equilibrium; left to their own devices they are liable to go to extremes of euphoria and despair.  For that reason they are not left to their own devices; they have been put in the charge of financial authorities whose job it is to supervise them and regulate them.

p.92

Ever since the Great Depression, the authorities have been remarkably successful in avoiding any major breakdown in the international financial system.

p.92

Ironically, it is their success that has allowed market fundamentalism to revive.  

p.92

When I studied at the London School of Economics in the 1950s, laissez-faire seemed to have been buried for good.  Yet it came back in the 1980s.  Under its influence the financial authorities lost control of financial markets and the super-bubble developed.  ([ financial authorities were co-opt, undermine, and possibly capture by a minority interlocking cohort of financial fundamentalists?; this successfully concerted takeover and capture of the governmental executive branch, legislative branch, regulatory institutions, and the Federal Reserve Bank of New York (U.S. central bank) (while Alan Greenspan - the man who knew - was the chairperson) has led to the Credit Crisis of 2008. ])

pp.92-93

   The super-bubble combines three major trends, each containing at least one defect.  First is the long-term trend towards ever increasing credit expansion as indicated by rising loan-to-value ratios in housing and consumer loans, and rising volume of credit to gross national product ratios (see Chart 7). 

p.93

This trend is the result of the countercyclical policies developed in response to the Great Depression.  Every time the banking system is endangered, or a recession looms, the financial authorities intervene, bailing out the endangered institutions and stimulating the economy. 

p.93

Their [financial authorities - The Fed?] intervention introduces an asymmetric incentive for credit expansion also known as moral hazard. 

p.93

The second trend is the globalization of financial markets, and the third is the progressive removal of financial regulations and the accelerating pace of financial innovations. 

p.93

As we shall see, globalization also has an asymmetric structure.  It favors the United States and other developed countries at the center of the financial system and penalizes the less-developed economies at the periphery.  The disparity between the center and the periphery is not widely recognized, but it has played an important role in the development of the super-bubble. 

p.93

And, as I have already mentioned, both deregulation and many of the recent innovations were based on false assumption that markets tend towards equilibrium and deviations are random. 

p.93

   The super-bubble ties together the three trends and the three defects.  The first trend can be traced back to the 1930s, but the second and third became firmly established only in the 1980s.  So one can date the inception of the super-bubble to the 1980s because that is when market fundamentalism became the guiding principle of the international financial system. 

p.94

Federal Reserve. Bureau of Economic Analysis 

p.95

GLOBALIZATION

   The globalization of financial markets was a very successful market fundamentalist project.  If financial capital is free to move about, it becomes difficult for any state to tax it or to regulate it because it can move somewhere else.  This puts financial capital into a privileged position. Government often have to pay more heed to the requirements of international capital than to the aspirations of their own people.  That is why the globalization of financial markets served the objectives of the market fundamentalists so well.  The process started with the recycling of petro-dollars in the aftermath of the 1973 oil shock, but it accelerated during the Reagan-Thatcher years. 

p.95

The international financial system is under the control of a consortium of financial authorities representing the developed countries.  They constitute the Washington consensus.  

p.95

They seek to impose strict market discipline on individual countries, but they are willing to bend the rules when the financial system itself is endangered.  

p.95

The way the system works, the United States, which enjoys veto power in the Bretton Woods institutions──the International Monetary Fund and the World Bank──is “more equal” than others.  The dollar has served as the main international reserve currency readily accepted by the central banks of the world. 

p.96

This has made it safer to hold financial assets at the center than at the periphery.  As the barriers to capital movements were removed the savings of the world were sucked up to the center and redistributed from there. 

p.96

Most of the crises occurred in the less developed world and could be ascribed to their lack of development, but some endangered the stability of the international financial system, notably the international banking crisis of the 1980s and the emerging market crisis of 1997-1998.  In these cases the financial authorities were willing to bend the rules to save the system, but market discipline continued to apply to the less developed world. 

p.97

Paradoxically the budget deficit helped to finance the current account deficit because the surplus countries invested their swelling monetary reserves in United States government and agency bonds.  

p.97

This was a perverse situation because capital was flowing from the less-developed world to the United States and both the current account and the budget deficits of the United States served as major sources of credit expansion.  

p.97

Another major source was the introduction of new financial instruments and the increased use of leverage by the banks and some of their customers, notably hedge funds and private equity funds.  

p.97 

Yet another source of credit expansion was Japan, which, in the aftermath of a real estate bubble, lowered interest rates to practically zero and is keeping them there indefinitely. 

p.97 

This gave rise to the so-called carry trade, whereby foreign institutions borrowed yen, and Japanese individuals used their savings to invest in higher yielding currencies, often on a leveraged basis. 

p.97

There was a symbiotic relationship between the United States, which was happy to consume more than it produced, and China and other Asian exporters, which were happy to produce more than they consumed. The United States accumulated external debt; China and the others accumulated currency reserves.  The United States had low savings rates, the others high ones.  There was a similar symbiotic relationship between banks and their customers, especially hedge funds and private equity funds, and also between mortgage lenders and borrowers. 

p.98

Households found themselves overexposed and overindebted.  Eventually, consumption has to fall. 

pp.98-99

   To properly understand what is happening, it is important to realize the difference between this crisis and the periodic crises that have punctuated financial history since the 1980s.  The previous crises served as successful tests which reinforced both the prevailing trend and the prevailing misconception of the long-term super-bubble.  The current crisis plays a different role:  It constitutes the inflection, or crossover, point not only in the housing bubble but also in the long term super-bubble.  Those who kept insisting that the subprime crisis was an isolated phenomenon lacked a proper understanding of the situation.  The subprime crisis was merely the trigger that released the unwinding of the super-bubble. 

p.99

   While it is clear, in retrospect, that the previous crises played the role of the successful tests that reinforced the super-bubble, the role and significance of the current crisis is less clearly defined.  My contention that it constitutes the end of an era is just that──a contention, not a fact or a scientific prediction.  It needs to be substantiated. 

pp.98-99

The current crisis plays a different role:  It constitutes the inflection, or cross-over, point not only in the housing bubble but also in the long term super-bubble. 

p.99

Those who kept insisting that the subprime crisis was an isolated phenomenon lacked a proper understanding of the situation.  The subprime crisis was merely the trigger that released the unwinding of the super-bubble. 

p.99

Similarly, after the 1987 stock market debacle, Japan emerged as the lender and investor of last resort. 

p.100

This is the first time since the Great Depression that the international financial system has come close to a genuine meltdown. 

p.101

There is nothing predetermined or compulsory about the boom-bust pattern.  It is just one manifestation of the reflexive relationships that characterize financial markets, and it does not occur in isolation.  Occasionally the pattern becomes so pronounced that it can be studied as if it were an isolated phenomenon. 

p.105

I record both my outlook at the start of this year and subsequent changes in my views.  This real-time experiment is designed to shed light on how my approach works in practice. 

p.107   Bretton Woods institutions

p.108   Vietnam war

        August 15, 1971, the ability to exchange US dollar for gold suspended 

p.108   

        oil and gold stocks,

        switch sterling, or premium dollars

p.108   European Common Market

p.108   interest equalization tax

        15 percent surcharge on the purchase of foreign securities abroad

p.109   1972, report entitled “The Case for Growth Banks”

p.110   explosion of international credit between 1973 and 1979

        first oil shock, recycling of petro-dollar, 

        Euro-dollar market 

p.113   England 1974 (1973-1979)

p.113

p.114   Collective System of Lending 

p.116   The international lending spree of the 1970s

        turned into the international banking crisis in 1982

p.116   with the spreading of risk, more risk could be taken

p.116   excessive use of porfolio insurance 

p.116   portfolio insurance, knock-out options 

Because they were used on a large scale they could not be exercised without causing a catastrophic discontinuity. 

p.132

India

Ambani brothers

Their activities range from oil refining, petrochemicals, and offshore natural gas production, to financial services and cellular telephones.  The discovery of offshore natural gas promises to make India energy self-sufficient within the next few years. 

p.132

Mukesh Ambani is using the cash flow from its oil and gas business to set up Reliance Retail, bringing food directly from the grower to the consumer──a bold project that seeks to cut the differential between consumer and producer prices by more than half. 

p.132

   India's infrastructure lags far behind China's, but infrastructure investment is beginning to pick up, helped by domestic savings and capital inflows from oil-rich Gulf States, which have large expatriate Indian populations. 

p.133

oil-producing countries of the Middle East (I don't discuss Russia because I don't want to invest there). 

p.133

The Gulf States have decided to invest in developing their own economies by exploiting their access to cheap energy, building oil refining and petrochemical plants, aluminum smelters, and other heavy industries at a rate which is limited only by the shortage of labor and equipment. 

p.133

Abu Dhabi has decided to establish a metropolis to rival Dubai.  With over trillion dollars in reserves and a population of 1.6 million (80 percent are expatriates), they can afford to do so. 

p.133

unpegging the currencies form the dollar. 

Kuwait has already done so, but other states, particularly Saudi Arabia, have been dissuaded from following Kuwait's example by strong political pressure from Washington. 

p.134

   Sovereign wealth funds are becoming important players in the international financial system. 

p.134

Sovereign wealth funds are likely to emerge as lenders and investors of last resort similar to the role that Japan sought to play after the stock market crash of 1987.  But the sovereign wealth funds are more diverse than the Japanese financial institutions were, and they are likely to follow divergent paths. 

p.134

It will be recalled that a Chinese state-owned oil company, China National Offshore Oil Corporation, ran into political opposition when it tried to acquire Unocal, as did a Dubai company, DP World, when it sought to take control of American port facilities. 

   (The new paradigm for financial markets : the credit crisis of 2008 and what it means / George Soros., 1. financial crises──united states., 2. united states──economic policy., 3. united states──economic conditions──21st century., 4. credit──united states., HB3722.S673  2008, 332.0973──dc22, 2008, )  

--

No part of this publication may be reproduced, stored in, or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording, or otherwise), without the prior permission of the publisher.  

NOTICE: In accordance with Title 17 U.S.C., section 107, some material is provided without permission from the copyright owner, only for purposes of criticism, comment, scholarship and research under the "fair use" provisions of federal copyright laws. These materials may not be distributed further, except for "fair use," without permission of the copyright owner. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml

   ____________________________________

Donella Meadows, Jorgen Randers, and Dennis Meadows, Limits to growth, 2004 [ ]

pp.43-44

    When we, system dynamicists, see a pattern persist in many parts of a system over long periods, we assume that it has causes embedded in the feedback loop structure of the system.  Running the same system harder or faster will not change the pattern as long as the structure is not revised.  Growth as usual has widened the gap between the rich and the poor.  Continuing growth as usual will never close the gap.  Only changing the structure of the system--the chains of causes and effect--will do that.

    What is the structure that keeps widening the gap between the rich and the poor even in the presence of enormous economic growth?  We see two generic structures at work.  The first has to do with social arrangement--some common in many cultures, some unique to particular cultures--that SYSTEMICALLY REWARD THE PRIVILEDGED WITH THE POWER AND RESOURCES TO ACQUIRE EVEN MORE PRIVILEGE.  Examples range from over to cover ethnic discrimination to tax loopholes for the wealthy; from inferior nutrition for the children of the poor to premium schooling for the children of the wealthy; from the use of money to gain political access, even in supposed democracies, to the simple fact that interest payments systematically flow from those who have less money than they need to those who have more than they need.

    In systems terms these structures are called "success to the successful" feedback loops. 17  They are positive loops that reward the successful with the means to succeed.  They tend to be endemic in any society that does not consciously implement counterbalancing structures to level the playing field.  (Example of counterbalancing structures include anti-discrimination laws, tax rates that increase as a person grows richer, universal education and health care standards, "safety nets" to support those who falls upon hard times, taxes on wealth, and democratic processes that separate politics from the influence of money).

Over the past three decades many people and organization have helped us understand how limits to material growth will shape global futures.  We dedicate this volume to three individuals whose contributions were fundamental:

AURELIO PECCEI, founder of the Club of Rome, whose profound concern for the world and undying faith in humanity inspired us and many others to care about and address the prospects for humanity's long-term future.

JAY W. FORRESTER, professor emeritus of the Sloan School of Management at MIT and our teacher.  He designed the prototype of the computer model we have used, and his profound systems insights have helped us understand the behaviors of economic and environmental systems.

Finally, it is our sad honour to dedicate this book to its main author, DONELLA H. MEADOWS.  Widely known as Dana, by all those who respected her and appreciated her work, she was a world-class thinker, writer, and social innovator.  Her high standards for communication, ethics, and service still inspire and challenge us--and thousands of others.  Much of the analysis and prose here are hers, but this book was completed after Dana's death in February 2001.  We intend that this edition will honour and advance her lifelong effort to inform the world's citizen and coax them toward sustainability.

    (Meadows, Donella H., copyright © 2004)

(Limits to growth : the 30-year update / Donella Meadows, Jorgen Randers, and Dennis Meadows, (hardcover : alk. paper), (pbk. : alk. paper), 1. economic development--environmental aspects, 2. population--economic aspects, 3. pollution--economic aspects, 4. sustainable development, pp.43-44 )

   ____________________________________

The necessary revolution : how individual and organizations are working together to create a sustainable world,  

Peter Senge, 

Bryan Smith, Nina Kruschwitz, Joe Laur, Sara Schley, 

2008

p.176   mental models. 

We all hold mental models——some shared across a society, others across a social class, a political party, an industry, a particular company, or even within our own family.  What is often less clear is how these models affect, even dictate, our thoughts and actions and the thinking of those around us. 

p.174

Ways of explaining reality 

    **increasing leverage and opportunity for learning 

    ||  

    ||   Events                React

    ||   what just happened?      

    ||   

    ||   Patterns/Trends       Anticipate/expectation  

    ||   what's been happening over time? 

    ||   have we been here or some

    ||   place similar before? 

    ||

    ||   Systemic Structures   Design/co-design/co-evolution   

    ||   what are the deeper forces driving these 

    ||   patterns  or  trends and how do they arise? 

    ||   what are the forces at play 

    ||   contributing to these pathways? 

    ||   

    ||   Mental Models         Transform/re-form/re-organise/re-call   

    ||   what about our thinking 

    ||   allows this situation to persist? 

    \/

    figure 12.1 

p.177

   Why is it so important to look beneath the surface at the deeper levels of reality?  Because in our experience it is often the key to lasting change.  When people or organizations pay attention only to the visible tip of the iceberg, they can only react to change as it happens—so at best, they survive the crisis.  They often try to compensate for their lack of analysis of a problem with aggressive and "proactive" strategies.  But being "proactive" from a reactive mind-set is reactive just the same.  With long enough lever, boasted Archimedes, "I can move the world."

 

   (The necessary revolution : how individual and organizations are working together to create a sustainable world, Peter Senge, Bryan Smith, Nina Kruschwitz, Joe Laur, Sara Schley, 2008, 338.927 Senge, pp.172-177)

   ____________________________________

Donella H. Meadows, Edited by Diana Wright, Thinking in systems             [ ]

p.104

Changing the length of a delay may utterly change behaviour. Delays are often sensitive leverage points for policy, if they can be made shorter or longer. You can see why that is. If a decision point in a system (or a person working in that part of the system) is responding to delayed information, or responding with a delay, the decisions will be off target. 

p.105

On the other hand, if action is taken too fast, it may nervously amplify short-term variation and create unnecessary instability. Delays determine how fast systems can react, how accurately they hit their targets, and how timely is the information passed around a system. Overshoots, oscillations, and collapses are always caused by delays.

p.107

  In your new position, you experience the information flows, the incentives and disincentives, the goals and discrepancies, the pressures──the bounded rationality──that goes with that position.

p.108

  Change comes first from stepping outside the limited information that can be seen from any single place in the system and getting an overview.  ...

p.108

  It's amazing how quickly and easily behaviour changes can come, with even slight enlargement of bounded rationality, by providing better, more complete, timelier information. 

     (Thinking in systems : a primer, Donella H. Meadows, Edited by Diana Wright, sustainability institute, 2008, QA 402 .M425 2008, )

   ____________________________________

··<---------------------------------------------------------------------------->

https://en.wikipedia.org/wiki/John_Kenneth_Galbraith

Financial bubbles[edit]

In A Short History of Financial Euphoria (1990), he traces speculative bubbles through several centuries, and argues that they are inherent in the free market system because of "mass psychology" and the "vested interest in error that accompanies speculative euphoria." Also, financial memory is "notoriously short": what currently seems to be a "new financial instrument" is inevitably nothing of the sort. Galbraith cautions: "The world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version." Crucial to his analysis is the assertion that the common factor in boom-and-bust is the creation of debt to finance speculation, which "becomes dangerously out of scale in relation to the underlying means of payment."

   ____________________________________

      ── https://en.wikipedia.org/wiki/Financial_crisis

Joachim Vogt (2014), Fear, Folly, and Financial Crises – Some Policy Lessons from History, UBS Center Public Papers, Issue 2, UBS International Center of Economics in Society, Zurich.

    https://www.ubscenter.uzh.ch/en/publications/public_papers/fear-folly-and-financial-crises.html

Diamond, Douglas W.; Dybvig, Philip H. (June 1983). "Bank Runs, Deposit Insurance, and Liquidity" (PDF). Journal of Political Economy. 91 (3): 401–419. doi:10.1086/261155. S2CID 14214187.

    http://minneapolisfed.org/research/qr/qr2412.pdf

Luc Laeven and Fabian Valencia (2008), 'Systemic banking crises: a new database'. International Monetary Fund Working Paper 08/224.

    http://www.imf.org/external/pubs/cat/longres.cfm?sk=22345.0 

   ____________________________________

Charles Mackay (1841), Extraordinary Popular Delusions and the Madness of Crowds

https://en.wikipedia.org/wiki/Extraordinary_Popular_Delusions_and_the_Madness_of_Crowds

Douglas French (2009) Early Speculative Bubbles and Increases in the Supply of Money

    https://mises.org/document/3628/Early-Speculative-Bubbles-and-Increases-in-the-Supply-of-Money

   ____________________________________

Charles Calomiris (1998), 'Blueprints for a new global financial architecture'.

    https://web.archive.org/web/20090504021125/http://www.house.gov/jec/imf/blueprnt.htm

    http://www.house.gov/jec/imf/blueprnt.htm 

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Murray Rothbard (1962), The Panic of 1819

    https://en.wikipedia.org/wiki/The_Panic_of_1819_(book)

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"The myths about the economic crisis, the reformist left and economic democracy" by Takis Fotopoulos, The International Journal of Inclusive Democracy, vol 4, no 4, Oct. 2008.

    http://www.inclusivedemocracy.org/journal/vol4/vol4_no4_takis_economic_crisis.htm

      ── https://en.wikipedia.org/wiki/Financial_crisis

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