Authors: Charles Ferguson
41
. http://www.consumeraffairs.com/news04/2005/credit_card_fee_suit.html; see also
http://finance.yahoo.com/news/bank-america-big-banks-face-113000788.html.
42
.
http://www.bloomberg.com/news/2011–11–28/secret–fed–loans–undisclosed–to–congress–gave–banks–13–billion–in–income.html.
43
.
http://www.nytimes.com/2011/12/04/business/secrets-of-the-bailout-now-revealed.html?_r=1&scp=1&sq=federal%20reserve%20sec%20disclosure%20lynn&st=cse.
CHAPTER 7 Agents of Pain: Unregulated Finance as a Subtractive Industry
1
. Federal Reserve, Flow of Funds reports for respective years.
2
. William J. Holstein, “Personal Business; The Home Equity Highway: Busy and Hazardous,”
New York Times
, December 23, 2001;
Alan Greenspan and James Kennedy, “Sources and Uses of Equity Extraction from Housing,”
(Washington, DC: Federal Reserve Board, 2007; data updated through 2008 by
Mr Hamilton); Bureau of Economic Analysis, “U.S. International Trade in Goods and Services,” Federal Reserve, Flow of Funds.
3
. “Global House Priers: A Home-Grown Problem,”
The Economist
, September 8, 2005, at http://www.economist.com/node/4385293.
Christopher B. Leinberger, “The Next Slum,”
Atlantic Monthly
, March 2008.
4
. For a detailed examination of this and other questions related to the federal deficit and U.S. national debt, see Simon Johnson and James
Kwak,
White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You
(2012).
5
. The most detailed account is Andrew Ross Sorkin,
Too Big to Fail
(New York: Viking, 2009).
6
. Audio recording of the entire SEC meeting available at
http://graphics8.nytimes.com/packages/audio/national/20081003_SEC_AUDIO/SEC_Open_Meeting_04282004.mp3.
7
. All company financial information is drawn from annual 10K filings.
8
. I am indebted to Charles Morris for this observation, and for the phrase.
9
. For the “repo run,” see Gary Gorton and Andrew Metrick, “Securitized Banking and the Run on the Repo,” National Bureau
of Economic Research Working Paper no. 15223, November 10, 2010.
10
. http://www.huffingtonpost.com/2011/10/14/goldman-sachs-for-profit-college_n_997409.html?page=1.
11
. http://chronicle.com/article/Education-Management-Corp/128560/.
12
. http://www.nytimes.com/2009/10/05/business/economy/05simmons.html?pagewanted=2&dbk.
13
. http://www.bloomberg.com/news/2012-02-11/sec-looking-into-private-equity-firms-valuation-of-assets.html.
14
. Adair Turner, “Reforming Finance: Are We Being Radical Enough?” 2011 Clare Distinguished Lecture on Economics and Public
Policy, February 18, 2011.
15
. Vito Racanelli,
Barron’s
, January 27, 2011.
CHAPTER 8 The Ivory Tower
1
. Justin Bekelman, “Scope and Impact of Financial Conflicts of Interest in Biomedical Research,”
Journal of the American Medical
Society
289 (2003): 454–486; George Khusuf et al., “Understanding, Assessing, and Managing Conflicts of Interest,” in Lawrence B. McCollough et al.,
Surgical Ethics
(New York: Oxford University Press, 2006), 343–366, quote on 351; U.S. Senate, Committee on Finance, “Staff Report on Sanofi’s Strategic Use of Third Parties to Influence the
FDA” (May 2011); for the three settlements see Justice Department press releases on TAP (an Abbott-Takeda joint venture), October 3, 2001; Astra-Zeneca, June 20, 2003; and Warner-Lambert (now
part of Pfizer), May 13, 2004; “Stanford Won’t Let Doctors Accept Gifts,” Associated Press, September 12, 2006, MSNBC.
2
. www.brg–experts.com.
3
. Ibid.
4
. www.theanalysisgroup.com.
5
. www.compasslexecon.com.
6
. Company website at www.crai.com; for revenues and employment practices, see Charles River Associates, Inc., 10K filing for 2010.
7
. R. Glenn Hubbard, “How Capital Markets Enhance Economic Performance and Facilitate Job Creation” (with William C. Dudley) (New
York: Goldman Sachs Global Markets Institute, 2004).
8
. 2011 company proxy statements.
9
. This was true as of late February 2012. See his Columbia CV at http://www0.gsb.columbia.edu/faculty/ghubbard/cv.html.
10
. The testimonials page is http://www.harrywalker.com/speaker/R-Glenn-Hubbard-ovations.cfm?Spea_ID=646.
11
. Steven Gjerstad and Vernon L. Smith, “Monetary Policy, Credit Extension, and Housing Bubbles: 2008 and 1929,”
Critical
Review
21, nos. 2–3 (2009): 269–300, quote on 286.
12
. David Goldman, “What Did Larry Summers Do at DE Shaw?”
Asia Time: Inner Workings
, April 6, 2009,
http://blog.atimes.net/? p=867.
13
. You can see the full interview, together with Felix Salmon’s commentary on it, on Salmon’s blog:
http://blogs.reuters.com/felix-salmon/2012/01/27/summers-inside-job-had-essentially-all-its-facts-wrong/.
14
. See, for example,http://www.rkmc.com/Credit-Default-Swaps-From-Protection-To-Speculation.htm.
15
.
The article can be found at http://www.nytimes.com/2009/04/06/business/06summers.html.
16
. Summers has two web pages on the Harvard website. One is at http://www.hks.harvard.edu/about/faculty-staff-directory/lawrence-summers. The
other is http://www.hks.harvard.edu/fs/lsummer/index.htm.
17
. The web page is http://www.harrywalker.com/speaker/Lawrence-Summers-ovations.cfm?Spea_ID=450.
18
. Heather Timmons, “Iceland’s Fizzy Economy Faces a Test,”
New York Times
, April 18, 2006.
19
. Frederic S. Mishkin and Tryggvi Thor Herbertson, “Financial Stability in Iceland,” Iceland Chamber of Commerce (May 2006), 49,
42.
20
. Frederic S. Mishkin, “Policy Remedies for Conflicts of Interest in the Financial System,” conference paper,
Macroeconomics,
Monetary Policy and Financial Stability: A Festschrift for Charles Freedman
(July 2003), 10–11.
21
. “Fed Governors’ Financial Disclosures: 2006,” Financial Markets Center (October 11, 2007).
22
. http://www.leighbureau.com/speaker.asp?id=501
23
. Company proxy filings.
24
. The page is http://www.harrywalker.com/speaker/Laura-Tyson-ovations.cfm?Spea_ID=43.
25
. His speaker’s bureau biography is at http://www.washingtonspeakers.com/speakers/biography.cfm?SpeakerID=1760.
26
.
http://www.prnewswire.com/news–releases/media–advisory–hal–scott–urges–narrow–application–of–volcker–rule–to–allow–bank–market–making–hedging–other–dodd–frank–permitted–activities–124002944.html.
27
. See http://www.law.harvard.edu/programs/corp_gov/media.shtml.
28
. http://www.compasslexecon.com/Pages/default.aspx.
29
. Anthony Giddens, “My Chat with the Colonel,”
Guardian
, March 9, 2007.
30
. Benjamin R. Barber, “Gaddafi’s Libya: An Ally for America?”
Washington Post
, August 15, 2007.
31
. Joseph S. Nye, Jr, “Tripoli Diarist,”
New Republic
, December 10, 2007.
32
. David Corn and Siddhartha Mahanta, “From Libya with Love: How a US Consulting Firm Used American Academics to Rehab Muammar
Qaddafi’s Image,”
Mother Jones
, March 3, 2011.
33
.
22 U.S.C. Sec. 611 (c)(1)(ii), http://www.fara.gov/.
34
. Reported in http://mobile.bloomberg.com/news/2012-01-07/on-the-capture-of-economists-the-ticker.
35
. See http://www.bloomberg.com/news/2012-01-17/economists-inside-job-conflicts-beg-for-more-than-pay-disclosure-view.html.
CHAPTER 9 A Rigged Game
1
. See, for example, my articles at
http://www.huffingtonpost.com/charles–ferguson/the–financial–crisis–and–_1_b_782927.html and also http://www.salon.com/2010/10/27/barack_obama_wall_street/.
2
. See James Womack, Daniel T. Jones, and Daniel Roos,
The Machine That Changed the World
(Cambridge, MA: MIT Press, 1991; rev. 2007), or
Kim B. Clark and Takahiro Fujimoto,
Product Development Performance
(Cambridge, MA: Harvard Business School Press, 1991).
3
. See Ramchandran Jaikumar, “Postindustrial Manufacturing,”
Harvard Business Review
(November/December 1986).
4
. http://www.digitimes.com/news/a20120131PD200.html.
5
.
http://mediadecoder.blogs.nytimes.com/2011/12/02/with–verizons–3–6–billion–spectrum–deal–cable–and–wireless–inch–closer/?scp=1&sq=verizon%20cable%20spectrum%20deal&st=cse.
6
. See, for example, http://www.offthechartsblog.org/what-should-corporate-tax-reform-look-like/ and
http://www.nytimes.com/2011/08/06/business/workers-wages-chasing-corporate-profits-off-the-charts.html.
7
. For the Senate, see http://www.cfinst.org/pdf/vital/VitalStats_t5.pdf. For the House, see
http://www.cfinst.org/pdf/vital/VitalStats_t2.pdf.
8
.
http://sunlightfoundation.com/blog/2011/12/13/the–political–one–percent–of–the–one–percent/?utm_source=The+Balance+Sheet&utm_campaign=36e95872b7–Balance_Sheet_12_02_1112_2_2011&utm_medium=email.
9
. http://www.opm.gov (U.S. Government Office of Personnel Management).
10
. PSI,
Wall Street and the Financial Collapse
, “Majority and Minority Staff Report,” 349.
11
. See http://www.reuters.com/article/2012/01/20/us-usa-holder-mortgage-idUSTRE80J0PH20120120.
12
.
See for example the firm’s own website: http://www.cov.com/practice/white_collar_and_investigations/.
13
. http://www.economicpolicyjournal.com/2011/01/blankfein–dimon–attending–white–house.html.
14
. Ian Dew-Becker and Robert J. Gordon, “The Rise in American Inequality,”
Vox
(June 19, 2008), www.voxeu.org/index.php?
q=node/1245.
15
.
http://www.nytimes.com/2011/08/06/business/workers–wages–chasing–corporate–profits–off–the–charts.html?scp=1&sq=floyd%20norris%20u.s.%20corporate%20profits%20record%20gnp%20share&st=Search.
16
.
http://dealbook.nytimes.com/2011/11/29/at–the–92nd–st–y–a–cushion–against–wall–st–worries/?hp.
17
. http://www.thecrimson.com/article/2011/2/25/aid–financial–percent–year/.
18
.
http://www.nytimes.com/2011/09/14/education/14delta.html?_r=1&sq=private%20universities%20public&st=cse&adxnnl=1&scp=1&adxnnlx=1323636060–50gcU9ysLdyDB7PikH05yg.
GLOSSARY
ADJUSTABLE RATE MORTGAGE (ARM)
A mortgage with an interest rate that varies over time, usually with reference to some
external rate.
ALT-A MORTGAGE
Originally, a mortgage offered to a borrower with a good credit rating but without full documentation (an alien, for example).
During the bubble, Alt-A mortgages were used to mask the borrower’s financial incapacity, becoming known in the trade as “liar loans”.
BANK HOLDING COMPANY
A corporation that owns a regulated deposit-taking bank, usually along with other financial services entities that may or
may not be regulated.
BROKER-DEALER
A firm that is in the business of buying and selling securities for its customers. Broker-dealers are often subsidiaries of
investment banks.
COLLATERALIZED DEBT OBLIGATION (CDO)
A security that is backed by a range of other securities, often of multiple types, including mortgages,
bank loans, bonds, and so forth. A CDO is almost always
structured;
that is, it will offer a hierarchy of bonds ranked by their payment priority. The cash flows from the securities
supporting the CDO are directed first to the top-ranked bonds, then to the second-ranked, and so on down the “subordination” ladder. The bottom-ranked CDO bonds therefore absorb the
first losses. CDOs played an important role in the financial crash, because their structure was inherently opaque and CDO creators loaded them up with very risky instruments, like subprime, often
fraudulent, mortgages. A
CDO SQUARED (CDO
2
)
is a CDO constructed from risky pieces of other CDOs.
COMMODITY FUTURES TRADING COMMISSION (CFTC)
An independent US federal agency that regulates trading in futures and options.
COMMUNITY REINVESTMENT ACT (CRA)
A 1977 US federal law that required regulated lenders to make loans and provide services to their local
communities.
CREDIT DEFAULT SWAP (CDS)
A form of derivative that transfers the default risk of a debt security, like a bond or a loan. The
protection
buyer
pays a stream of interest-like payments to the
protection seller,
who agrees to make the protection buyer whole if the instrument defaults. Neither the protection buyer nor the
protection seller needs to own the underlying instrument. CDSs grew at an extraordinary rate during the bubble because they were a convenient way for traders to simulate bond portfolios with
minimal cash outlays.
CREDIT RATING AGENCIES
Private companies that evaluate the risk and credit quality of securities and provide ratings based on their analysis.
The largest credit raters are Fitch Ratings, Moody’s Investor Services, and Standard & Poor’s.
DEPOSITARY INSTITUTION
A financial institution, which may be a bank, a thrift (savings and loan), or a credit union, that accepts deposits.
DERIVATIVE
A financial contract with a value that is determined by the value of some other underlying asset, rate, or event.
FANNIE MAE
Short for the Federal National Mortgage Association (FNMA), a US government-sponsored enterprise that provides financing for the home
mortgage market.