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513000a
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parsimony.
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Niall Ferguson |
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efc8eff
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financial contracts known as options. In essence, the buyer of a call option has the right, but not the obligation, to buy an agreed quantity of a particular commodity or financial asset from the seller ('writer') of the option at a certain time (the expiration date) for a certain price (known as the strike price). Clearly, the buyer of a call option expects the price of the commodity or underlying instrument to rise in the future. When the..
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Niall Ferguson |
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4c3e814
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There is always home, sweet home. As an insurance policy or a pension plan, however, this strategy has one very obvious flaw. It represents a one-way, totally unhedged bet on one market: the property market. Unfortunately, as we shall see in the next chapter, a bet on bricks and mortar is very far from being as safe as houses.
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Niall Ferguson |
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bca0726
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specified confidence intervals (for example, the statement that 40 per cent of the balls in the jar are white, at a confidence interval of 95 per cent, implies that the precise value lies somewhere between 35 and 45 per cent - 40 plus or minus 5 per cent).
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Niall Ferguson |
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3d91f8b
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constrained
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Niall Ferguson |
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Traders had begun to speak of the 'Greenspan put' because having him at the Fed was like having a 'put' option on the stock market (an option but not an obligation to sell stocks at a good price in the future).
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Niall Ferguson |
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1590d88
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the Japanese experience, when a conscious effort by the central bank to prick an asset bubble ended up triggering an 80 per cent stock market sell-off and a decade of economic stagnation.
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Niall Ferguson |
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36f23f7
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Original Design.' The bell curve that we encountered in Chapter 3 represents the normal distribution, in which 68.2 per cent of outcomes are within one standard deviation (plus or minus) of the mean.
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Niall Ferguson |
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d63b244
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achievement to create the first modern insurance fund, based on correct actuarial and financial principles, rather than mercantile gambling.
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Niall Ferguson |
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c99929c
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feckless
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Niall Ferguson |
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2ad7197
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The odds of the average American being shot to death are 1 in 314. But he or she is even more likely to commit suicide (1 in 119); more likely still to die in a fatal road accident (1 in 78); and most likely of all to die of cancer (1 in 5).11
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Niall Ferguson |
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0a9745b
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armed with an AK47 - a gift from Fidel Castro, the man he had sought to emulate. As the tanks rumbled towards him, Allende realized it was all over and, cornered in what was left of his quarters, shot himself.
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Niall Ferguson |
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6344af5
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bond markets have power because they're the fundamental base for all markets. The cost of credit, the interest rate [on a benchmark bond], ultimately determines the value of stocks, homes, all asset classes.
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Niall Ferguson |
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e7a78d8
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Mortgages were short-term, usually for three to five years, and they were not amortized. In other words, people paid interest, but did not repay the sum they had borrowed (the principal) until the end of the loan's term, so that they ended up facing a balloon-sized final payment. The average difference (spread) between mortgage rates and high-grade corporate bond yields was about two percentage points during the 1920s, compared with about h..
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Niall Ferguson |
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c8c7ed1
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now Rothschild was providing Europe with a new social elite by raising up the system of government bonds to supreme power . . . [and] endowing money with the former privileges of land. To be sure, he has thereby created a new aristocracy, but this is based on the most unreliable of elements, on money . . . [which] is more fluid than water and less steady than the air . . .32
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Niall Ferguson |
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c540e5a
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What had begun as a system of large-scale insurance had simply become a system of taxation, with today's contributions being used to pay today's benefits, rather than to accumulate a fund for future use. This 'pay-as-you-go' approach had replaced the principle of thrift with the practice of entitlement . . . [But this approach] is rooted in a false conception of how human beings behave. It destroys, at the individual level, the link between..
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Niall Ferguson |
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3daea10
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the Government National Mortgage Association (Ginnie Mae), which was to cater to poor borrowers like military veterans, and a rechartered Fannie Mae, now a privately owned government sponsored enterprise (GSE), which was permitted to buy conventional as well as government-guaranteed mortgages.
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Niall Ferguson |
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efd4352
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he later made the tobacco companies pay: over $200 billion to Mississippi and forty-five other states as compensation for Medicaid costs arising from tobacco-related illnesses. The case (immortalized in the film The Insider) made Scruggs a rich man. His fee in the tobacco class action is said to have been $1.4 billion, or $22,500 for every hour his law firm worked.
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Niall Ferguson |
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4c30698
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there is nothing safer than lending money to people with property. Why? Because if they default on the loan, you can repossess the house. Even if they run away,
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Niall Ferguson |
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1b171f0
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The British welfare state, it seemed, had removed the incentives without which a capitalist economy simply could not function: the carrot of serious money for those who strove, the stick of hardship for those who slacked.
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Niall Ferguson |
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d5ce270
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Japan. So successful was the Japanese 'welfare superpower' that by the 1970s life expectancy in Japan had become the longest in the world. But that, combined with a falling birth rate, has produced the world's oldest society, with more than 21 per cent of the population already over the age of 65.
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Niall Ferguson |
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9dd292d
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money is a matter of belief, even faith: belief in the person paying us; belief in the person issuing the money he uses or the institution that honours his cheques or transfers. Money is not metal. It is trust inscribed. And it does not seem to matter much where it is inscribed: on silver, on clay, on paper, on a liquid crystal display.
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Niall Ferguson |
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bf0b5a4
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parsimonious
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Niall Ferguson |
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5ce2ade
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Edsel Ford, son of the firm's founder Henry,
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Niall Ferguson |
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f653896
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Meanwhile, property prices roughly trebled between 1963 and 1979, while consumer prices rose by a factor of just 2.5. But there was a sting in the tail. The same governments that avowed their faith in the 'property-owning democracy' also turned out to believe in price stability, or at least lower inflation. Achieving that meant higher interest rates.
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Niall Ferguson |
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4486f6f
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Two years later, to provide some competition in the secondary market, the Federal Home Loan Mortgage Corporation (Freddie Mac) was set up. The effect was once again to broaden the secondary market for mortgages, and in theory at least to lower mortgage rates.
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Niall Ferguson |
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ccdf87a
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Suddenly the people running Savings and Loans had nothing to lose - a clear case of what economists call moral hazard.
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Niall Ferguson |
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5f9cf8c
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Driving Dixie Down In May 1863, two years into the American Civil War, Major-General Ulysses S. Grant captured Jackson, the Mississippi state capital, and forced the Confederate army under Lieutenant-General John C. Pemberton to retreat westward to Vicksburg on the banks of the Mississippi River. Surrounded, with Union gunboats bombarding their positions from behind, Pemberton's army repulsed two Union assaults but they were finally starved..
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Niall Ferguson |
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6b13a74
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peculation.
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Niall Ferguson |
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those who live by the tort, die by the tort.
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Niall Ferguson |
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e9decc9
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And from 1966, under Regulation Q, there was a ceiling of 5.5 per cent on their deposit rates, a quarter of a per cent more than banks were allowed to pay.
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Niall Ferguson |
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4885d05
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Some S&Ls bet their depositors' money on highly dubious projects. Many simply stole it, as if deregulation meant that the law no longer applied to them.
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Niall Ferguson |
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8a60344
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tranches
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Niall Ferguson |
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4fecfd7
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The closure of the stock market and the intervention of the authorities to supply liquidity almost certainly averted a catastrophic fire-sale of assets.
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Niall Ferguson |
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dbd3a8c
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The risk was spread across the globe from American state pension funds to public health networks in Australia and even to town councils beyond the Arctic Circle. In Norway, for example, the municipalities of Rana, Hemnes, Hattjelldal and Narvik invested some $120 million of their taxpayers' money in CDOs secured on American subprime mortgages.
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Niall Ferguson |
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3af05be
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In the Philippines, formalizing home ownership was until recently a 168-step process involving fifty-three public and private agencies and taking between thirteen and twenty-five years.
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Niall Ferguson |
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4b504c6
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agencies began to downgrade scores of RMBS CDOs (short for 'residential mortgage-backed security collateralized debt obligations', the very term testifying to the over-complex nature of these products).
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Niall Ferguson |
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a10d843
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Even today, you can still see the empty lots that the riots left in their wake.
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Niall Ferguson |
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e758063
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houses are pretty illiquid assets - which means they are hard to sell quickly when you are in a financial jam. House prices are 'sticky' on the way down because sellers hate to cut the asking price in a downturn; the result is a glut of unsold properties and people who would otherwise move stuck looking at their For Sale signs. That in turn means that home ownership can tend to reduce labour mobility, thereby slowing down recovery.
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Niall Ferguson |
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f02f3d4
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the war should be understood as a kind of backlash against globalization, heralded by rising tariffs and immigration restrictions in the decade before 1914, and welcomed most ardently by Europe's agrarian elites, whose position had been undermined for decades by the decline in agricultural prices and emigration of surplus rural labour to the New World.14
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Niall Ferguson |
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249be62
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the sellers of these 'structured products' boasted that securitization was having the effect of allocating risk 'to those best able to bear it'. Only later did it turn out that risk was being allocated to those least able to understand it.
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Niall Ferguson |
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779342d
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Roughly two fifths of the world's population is effectively outside the financial system, without access to bank accounts, much less credit.
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Niall Ferguson |
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6199e71
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extravagant generosity with other people's money.
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Niall Ferguson |
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cc5c170
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it's not owning property that gives you security; it just gives your creditors security. Real security comes from having a steady income,
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Niall Ferguson |