Notes

Chapter 1

¹ See J.K. Galbraith, The Great Crash 1929 (Boston: Penguin, 1954).

² Charles P. Kindleberger and Robert Aliber, Manias, Panics and Crashes, 5^th ed. (New York:Wiley, 2005). This is the definitive history of asset bubbles.

Chapter 2

¹ See John Authers, “Victim of Its Own Success,” Financial Times, January 22, 1997, Section (if any), Edition; and John Authers, “Mutuals Manage to Miss the Track,” Financial Times, January 11, 1997.

² See John Authers and Elizabeth Wine, “Jeffrey Vinik to leave fund manage-ment,”byFinancial Times , October 27, 2000. He made annual returns of 53 percent per year for four years and closed before the crash of 2000 could dent his returns.

³ Jim Melcher, conversation with the author, December 1, 2009. Melcher went on to make returns of more than 200 per cent in 2007, after successfully betting on the end of the credit bubble.

⁴ In 2007, shortly before his death at the age of 60, Tony Dye wrote to the Financial Times saying that the world financial system needed a “clean-out of Augean stable proportions”—a judgment that also proved correct.

Chapter 3

¹ Quoted from John C. Bogle, Common Sense on Mutual Funds, 10^th Anniversary Edition, (Hoboken, NJ: Wiley, 2009), 155.

² See Burton Malkiel, A Random Walk Down Wall Street, (New York: Norton, 2007)

³ Figures are from Common Sense on Mutual Funds.

⁴ See Peter Bernstein, Capital Ideas Evolving, (Somerset, NJ: Wiley, 2005).

⁵ Common Sense on Mutual Funds 335.

⁶ See Benoit Mandelbrot and Richard L. Hudson, The (Mis)Behavior of Markets—A Fractal View of Financial Turbulence, (New York: Basic Books, 2004), 94.

⁷ See Justin Fox, The Myth of Rational Markets, (New York: Collins Business, 2009) for a definitive study of the academic politics behind the break-throughs in rational markets.

⁸ Ibid., 105.

⁹ See Antte Petajisto, Magellan’s Problem: Closet Indexing, November 15, 2005, http://www.petajisto.net/media/magellan_oped.pdf.

¹⁰ See Jason Zweig, “Inside the world’s largest fund,” Money Magazine, April 15, 2002.

¹¹ See K.J. Martijn Cremers and Antte Petajisto, “How Active is Your Fund Manager? A New Measure That Predicts Performance,” March 31, 2009, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=891719.

Chapter 4

¹ Taken from The Reserve Fund’s Annual Report to investors, July 2008—written a few weeks before the fund sustained a loss on Lehman bonds and closed itself to investors, triggering the world’s worst financial panic in at least a century.

² Figures are drawn from William Greider, Secrets of the Temple—How the Federal Reserve Runs the Country, (New York: Simon and Schuster, 1987).

³ Paul Volcker speaking at the Chicago Mercantile Exchange’s Global Financial Leadership Conference (Naples, Florida, November 2, 2009).

⁴ Paul Schott Stephens, “Of Black Swans and Money Funds” (speaking at the Investment Company Institute, New York City, October 6, 2008).

Chapter 5

¹ See Greider, Secrets of the Temple—How the Federal Reserve Runs the Country, 337.

² See Charles R. Morris, The Sages—Warren Buffett, George Soros, Paul Volcker and the Maelstrom of Markets, (New York: Public Affairs, 2009), 126.

³ See James Grant, Mr. Market Miscalculates—The Bubble Years and Beyond, (Edinburg, Virginia: Axios, 2008), xvii.

⁴ See Bureau of Labor and Statistics, “Databases, Tables & Calculators by Subject,” http://data.bls.gov.

Chapter 6

¹ See Federal Deposit Insurance Corporation’s Division of Research and Statistics, “History of the Eighties—Lessons for the Future Volume 1, An Examination of the Banking Crisis of the 1980s and Early 1990s,” http://www.fdic.gov/bank/historical/history/191_210.pdf. Chapter 5 covers the LDCs crisis.

² Quoted in Moira Johnston, The tumultuous history of the Bank of America, (Frederick, Maryland: Beard Books, 2000), 181.

³ López Portillo lived until 2004. He was never forgiven, and whenever he entered a restaurant, Mexicans would bark derisively. Short of funds late in life, he even resorted to giving his name to a new brand of tequila.

⁴ Antoine van Agtmael, conversation with the author, September 2009.

⁵ Quoted from Antoine van Agtmael, The Emerging Markets Century—How a New Breed of World-Class Companies is Overtaking the World, (New York: Free Press, 2007), 5.?

⁶ Figures provided by Peter Veto of MSCI Barra.

Chapter 7

¹ Michael Lewis, Liar’s Poker: Rising Through the Wreckage on Wall Street, (New York: Penguin, 1990).

² See “Trends and Cycles in Corporate Bond Financing” by W. Braddock Hickman, National Bureau of Economic Research, 1952.

³ See Bryan Burrough and John Helyar, Barbarians at the Gate, (New York: Random Century, 1990).

⁴ Figures cited in James B. Stewart, Den of Thieves, (Riverside, NJ: Simon & Schuster, 1991), 503–504.

Chapter 8

¹ These figures are based on Datastream equity indices.

² See Kindleberger and Aliber, Manias, Panics and Crashes, x.

³ See Gabriele Galati and Michael Melvin, “Why has FX trading surged? Explaining the 2004 triennial survey,” BIS Quarterly Review, December 2004.

⁴ See Christopher Condon and Peter Garnham, “Swiss franc wins foreign favour in funding asset purchases,” Financial Times, March 22, 2007.

Chapter 9

¹ See Anatole Kaletsky, “How Mr Soros made a billion by betting against the pound,”The Times of London, October 26, 1992.

² See David O. Beim and Charles Calomiris, Emerging Financial Markets, (New York: McGraw Hill, 2001).

³ See “Triennial Central Bank Survey,” Bank of International Settlements, http://www.bis.org/publ/rpfxf07t.htm.

Chapter 10

¹ See Steve Thompson, “Greenspan Speech Triggers Big Market Slide,” Financial Times, December 7, 1996.

² See John Authers and Emiko Terazono, “Sales of mutual funds hit record—Concerns grow that bull market may have given retail investors unrealistic expectations,”Financial Times , April 14,1998.

³ Figures come from Kindleberger and Aliber, Manias, Panics and Crashes 156–7.

⁴ See Beim and Calomiris, Emerging Financial Markets.

⁵ See John Authers, “Growling at the bears—Everyman in the News,” Financial Times, October 22, 1997.

Chapter 11

¹ See John Authers and Richard Wolffe, The Victim’s Fortune—Inside the Epic Battle Over the Debts of the Holocaust, (New York: Harper Collins, 2002).

² See David O. Beim, “Europe and the Financial Crisis,” Columbia Business School, March 17, 2009, http://www1.gsb.columbia.edu/mygsb/faculty/research/pubfiles/3324/Europe%20and%20the%20Financial%20Crisis%2Epdf.

³ See Tracy Corrigan, “Goldman chief to net $206m from offering,” Financial Times, April 13, 1999.

⁴ Details of Basel rules, and the debate over overhauling them, are updated at www.bis.org.

⁵ See John Authers, “Regulation plea over bank ‘mega-mergers,’” Financial Times, April 29, 1998.

Chapter 12

¹ The figure comes from the definitive and highly entertaining account of the LTCM disaster: Roger Lowenstein, When Genius Failed—The Rise and Fall of Long-Term Capital Management, (Maryland: Random House, 2000), 219.

² Ibid.

³ Ibid, 188.

⁴ See John Authers, “Nothing to fear save uncertainty,” Financial Times, October 10, 1998.

Chapter 13

¹ Richard Tomkins, “The virtual investment. Billions Were Poured Into Internet-Related Companies,” Financial Times, December 5, 2000.

² All the hedge fund statistics in this chapter are drawn from the Hedge Fund Research Media Reference Guide for October 2009, available from www.hedgefundresearch.com.

Chapter 14

¹ See Goldman Sachs Economics Group, The World and the BRICs Dream, (New York: 2006). It includes five years of subsequent research on the BRICs.

² See Jack Bogle, The Little Book of Common-Sense Investing, (Somerset, NJ: Wiley, 2007).

³ This figure goes up to when the BRICs peaked, but the returns that this investor would have made by holding on until November 2009, a year after the crash, were still a barely credible 512 percent. Over this time, the BRICs’ share of the world’s total market value rose six-fold.

⁴ See “Emerging Markets: Latent Demand,” note by Global Wealth Allocation of London, November 13, 2009.

Chapter 15

¹ Gary. B Gorton, and K. Geert Rouwenhorst, “Facts and Fantasies about Commodity Futures,” Yale ICF Working Paper No. 04-20, February 28, 2005, http://ssrn.com/abstract=560042.

² See “Strategic Asset Allocation and Commodities,” March 27, 2006, http://www.pimco.com/LeftNav/Viewpoints/2006/Ibbotson+Commodity+Study.htm.

³ See Daniel Whitten and Alan Bjerga, “Lieberman May Seek New Rules on Commodity Speculators,” Bloomberg, May 20, 2008.

⁴ Gary Gorton, conversation with the author, Decmber 4, 2009.

⁵ See Chris Watling, monthly bulletin, Longview Economics, November 2007.

⁶ This figure comes from Rob Carnell of ING Economics.

⁷ See “Emerging Markets: Latent Demand,” note issued by Global Wealth Allocation, November 13, 2009.

Chapter 16

¹ See Gillian Tett, Fool’s Gold: How Unrestrained Greed Corrupted a Dream, Shattered Global Markets and Unleashed a Catastrophe, (New York: Little, Brown, 2009), for the definitive account of how bankers developed credit derivative technology.

² Figures are available online at www.isda.org.

³ Quoted in Richard Beales, “Industry on smooth learning curve with Corrigan report,” Financial Times, September 24, 2006.

Chapter 17

¹ Ben Bernanke himself devoted a speech to the “Great Moderation” in 2004. It is available at http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2004/20040220/default.htm.

² See Hyman Minsky, John Maynard Keyes (New York: McGraw Hill, 2008) 125.

³ See John Authers and Anuj Gangahar, “Correlation’ rather than ‘contagion,’”Financial Times , February 28, 2007.

⁴ See Michiyo Nakamoto and David Wighton, “Bullish Citigroup is ‘still dancing’ to the beat of the buy-out boom,” Financial Times, July 10, 2007.

Chapter 18

¹ See Ben White and Saskia Scholtes, “Bear Stearns hedge fund on brink of failure after bad subprime bets,” Financial Times, June 20, 2007.

² See Saskia Scholtes, “Bear Stearns shock waves gain new force” Financial Times, July 18, 2007.

³ See Amir E. Khandaniy and Andrew W. Lo, “What Happened to the Quants in August 2007?” www.ssrn.com.

⁴ See Peter Thal Larsen, “Goldman pays the price of being big,” Financial Times, August 13, 2007.

⁵ Joanna Chung, “Two ex-Bear Stearns fund chiefs cleared of misleading investors,”Financial Times , November 11, 2009.

Chapter 19

¹ The clip of Cramer’s outburst is widely available on the Internet and has been placed several times on www.youtube.com.

² See Harry Potter and the Deathly Hallows by J.K. Rowling.

³ For a detailed account of how the repo market works, and how it failed in 2007, see Gary B. Gorton, Slapped by the Invisible Hand—The Panic of 2007 (New York: Oxford University Press, 2010). 4 See John Authers, “The Short View: Countrywide Crunch,” Financial Times, August 23, 2007.

⁴ See John Authers “The Short View: Countrywide crunch,” Financial Times August 23, 2007.

Chapter 20

¹ See Galbraith, The Great Crash 1929.

² In full disclosure, Mr. Peston and the author were colleagues for many years at the Financial Times.

³ “Northern Rock gets bank bail out,” BBC, September 13, 2007.

⁴ Quoted in Martin Mayer, The Fed—The Inside Story of How the World’s Most Powerful Financial Institution Drives the Markets, (New York: Free Press, 2001), 159.

⁵ See Paul J. Davies and David Wighton, “Citi slashes SIV fund exposure,” Financial Times, December 11, 2007.

⁶ See Francesco Guerrera, “On Wall St: Super fund pill can’t treat the SIV illness,”Financial Times , December 7, 2007.

⁷ Note that this estimate proved to be hugely understated. See Chris Bryant and Anora Mahmudova, “Citigroup leads financials to a five-year low,” Financial Times, November 2, 2007.

⁸ For a detailed account of the fall of Bear Stearns, see Street Fighters by Kate Kelly, or The Sellout by Charles Gasparino.

Chapter 21

¹ George Soros, speaking in Budapest, October 2009. Text provided to the author.

Chapter 22

¹ Quoted on the cover of Andrew Ross Sorkin, Too Big To Fail—The inside story of how Wall Street and Washington fought to save the financial system—and themselves (New York: Viking, 2009).

² See the account in Too Big To Fail. It suggests Lehman might have been rescued by Barclays of the United Kingdom, but for the refusal by British regulators to allow the deal, which the United States had not anticipated.

Chapter 23

¹ Art Cashin, interviewed by author at the NYSE, September 9, 2009. See video at http://www.ft.com/cms/bfba2c48-5588-11dc-b971-0000779fd2ac.html?_i_referralObject=9565051&fromSearch=n

² See Beim, “Europe and the Financial Crisis,” Columbia Business School.

³ See Financial Times reporters, “Pressure Grows on Europe to Protect Banks,”Financial Times , October 1, 2008.

⁴ See Bertrand Benoit, James Wilson and agencies, “Germany guarantees savings,”Financial Times , October 5, 2008. Note that in Germany, bank assets came to almost three times GDP.

Chapter 24

¹ See John Authers, “Short View: Diversification,” Financial Times, January 29, 2009.

² See RAFI Fundamentals newsletter, January 2009, http://www.researchaffiliates.com/ideas/pdf/Fundamentals_200901.pdf.

³ See Elroy Dimson, Paul Marsh, and Mike Staunton, Triumph of the Optimists: 101 Years of Global Investment Returns, (Princeton, NJ: Princeton University Press, 2002).

⁴ See Elroy Dimson, Paul Marsh, and Mike Staunton, “The Worldwide Equity Premium: A Smaller Puzzle,” London Business School, January 2007.

⁵ See Triumph of the Optimists .

⁶ See Robert Arnott, “Bonds: Why Bother?” Journal of Indexes, May/June 2009, http://www.indexuniverse.com/publications/journalofindexes/joi-articles/5710-bonds-why-bother.html?Itemid=11.

Chapter 25

¹ See Randall Dodd, “Playing with Fire,” Finance & Development (2009).

² See Krishna Guha, “Fed Supports Emerging Economies,” Financial Times, October 30, 2008.

³ See Tom Mitchell, “Slowdown Forces Rethink on Social Compact,” Financial Times, November 10, 2008.

⁴ See Geoff Dyer, “China Authorises ‘Massive’ Stimulus Package,” Financial Times, November 9, 2008.

⁵ Antoine van Agtmael, conversation with the author, October 6, 2009.

⁶ See John Authers, “Short View: China’s bubble,” Financial Times, August 12, 2009.

⁷ John Dizard “A copper kettle mania in China has boiled up for a bull market,”Financial Times , November 14, 2009.

Chapter 26

¹ See Kindleberger, Manias, Panics, and Crashes, 241. Kindleberger was quoting J.H. Clapham, the historian of the Bank of England.

² See Francesco Guerrera, “Citi Has Strong Start to the Year,” Financial Times, March 10, 2009.

³ See Francesco Guerrera and Michael MacKenzie, “Citigroup Helps Lift Markets Worldwide,” Financial Times, March 11, 2009.

⁴ See Greg Farrell, Henny Sender, and Andrew Ward, “U.S. Agrees Bailout for Citigroup,” Financial Times, November 24, 2008.

⁵ See Sundeep Tucker, “Bank of America gets $138bn Lifeline,” Financial Times, January 15, 2009.

⁶ Krishna Guha, Francesco Guerrera, and Alan Rappeport, “Stress Tests Show $75bn Buffer Needed,” by Financial Times, May 7 2009.

⁷ Up-to-date statistics are available online at http://www.fdic.gov/bank/ individual/failed/banklist.html.

Chapter 27

¹ Cited in Robert Menschel, Markets, Mobs & Mayhem—A Modern Look at the Madness of Crowds, (NewYork: Wiley, 2002).

² Figures are drawn from Professor Shiller’s website. The data is downloadable in Excel format from http://www.econ.yale.edu/~shiller/data/ie_data.xls.

³ Figures provided by Peter Veto of MSCI. Barra.

⁴ See Crispin Odey, “It may be a bubble but it’s completely rational,” Financial Times, September 23, 2009.

⁵ Russell Napier, Anatomy of the Bear, (Hong Kong: CLSA Press) is the definitive financial history of these bear market bottoms.

Conclusion

¹ See Richard Thaler and Cass Sunstein, Nudge—Improving Decisions About Health, Wealth, and Happiness, (New York: Penguin, 2008), for a clear (and very influential) exposition of how offering default options could be good public policy in practice.