Index
A
ABX index, 116
Agtmael, Antoine van, 43-44, 176
AIG (American International Group), xxii, 152, 191
Arnott, Rob, 165
B
Bank of America, xxi, 152, 196
Bank of International Settlements (BIS), 59
Bank of Japan, 57
BankAmerica, 77
banks. See also specific banks
bank runs, 139-144
banking reforms, 197
banks too big to fail, 76-82
deposit insurance, 140
government stakes in, 181
impact of money market funds on, 26-30
market recovery, 179-184
Northern Rock, 140
stress tests, 183
Barbarians at the Gate, 52
Baruch, Bernard, 186
Basel II Accord, 80
Bear Stearns, xx-xxi, 127-129, 143-146
Beim, David, 83
bell curve distribution of market returns, 19
Bent, Bruce, 25
bibliography, 215-221
BIS (Bank of International Settlements), 59
Black Wednesday (UK), 62-64
Black-Scholes theorem, 85
BNP Paribas, xx
Boesky, Ivan, 48
Bolton, Anthony, 12
bonds
bond market after Shanghai Surprise, 124-126
junk bonds, 48-54
Bretton Woods system (gold standard), 33
BRICs (Brazil, Russia, India, and China), xix, 97-103
Brown, Gordon, 181
Bryan, William Jennings, 32
bubbles. See investment bubbles
Buffett, Warren, 102
Bush, George W., 159
C
Calomiris, Charles, 83
career risk, 73-74
carry trade, 55-61
Carter, Jimmy, 37
Cashin, Art, 160
CDOs (collateralized debt obligations), 116, 128-129
Centre for Capital Market Dysfunctionality, 15
Charles Schwab, 72
Chicago Board Options Exchange Vix Index, 121
Chicago Mercantile Exchange, 65
China
fiscal policy, 175-177
stop in rise of renminbi, 150
Cisco Systems, 92
Citicorp, 76-77
Citigroup, xxii, 141-142, 179-181
Clinton, Bill, 77
collateralized debt obligations (CDOs), 116, 128-129
Comerci (Controladora Comercial Mexicana SAB), 171
commodities, 104-111
The Community Bankers U.S. Government Money-Market Fund, 29
confidence
in government institutions, loss of, 158-162
restoring, 183-184
Controladora Comercial Mexicana SAB (Comerci), 171
corporate raiders, 117
Corrigan, Gerald, 118
Countrywide Financial, 136
crashes
market recovery, 179-184
NASDAQ crash of 2000, 90-96
credit default swaps, 112-118
credit derivatives, 113
credit market
credit default swaps, 112-118
credit derivatives, 113
cyclically adjusted price/earnings ratio, 188
D
Deng Xiaoping, 56
deposit insurance, 140
diversification, 6
by asset classes, 163-166
dot coms, 90-93
Douglas, Michael, 48
Dramer, Jim, 163
Drexel Burnham Lambert, 51
Dye, Tony, 15
E
ECB (European Central Bank), 148, 150
Einstein, Albert, 76
Ellis, Charles D., 16
emerging markets
alignment of disparate markets, 46
BRICs (for Brazil, Russia, India, and China), 97-103
decoupling, 171-178
history of, 40-41
investment in, 41-45
rebranding of LDCs to emerging markets, 43
endnotes, 202-214
ERISA (Employee Retirement Income Savings Act), 20, 70
ETFs (exchange-traded funds), 100
European Central Bank (ECB), 148
European Monetary System, 63
exchange-traded funds (ETFs), 100
F
fair value accounting, 182
Fannie Mae, xvii, xxi, 50, 149, 153, 181
Fidelity Magellan Fund, xvi, 11-13
First Chicago NBD, 77
Fitch, 80
foreign exchange, 62-67
framing, 23
Freddie Mac, xvii, xxi, 50, 149, 153, 181
Fukuyama, Francis, 55
Fuld, Richard, 152
fund managers, reforming compensation system for, 198-199
funds
effect on banking industry, 196-197
ETFs (exchange-traded funds), 100
Fidelity Magellan Fund, 11-13
hedge funds, 83-89
defined, 84
leverage, 85
LTCM (Long-Term Capital Management), 83-89, 153
market-neutral hedge funds, 129-131
short selling, 84
structure of, 84
index funds
bell curve distribution of market returns, 19
commodities, 104-111
development of, 16
disadvantages of, 20-22
as force for inefficiency, 21
MSCI World emerging markets index, 44
risk management, 18
money market funds
The Community Bankers U.S. Government Money-Market Fund, 29
explained, 25
growth of, 27
impact on banks, 26-30
The Reserve Fund, 26
private equity funds, 117
quantitative equity funds, 127-132
G
Geithner, Timothy, 182
General Motors, 113
The General Theory (Maynard), 194
Glass-Steagall Act, 77
Global Equity Opportunities fund, 130
GMO, 15
gold standard
effect on U.S. economy, 33-34
history of, 32-33
problems with, 33-34
shift to oil standard, 35-38
Goldman Sachs, 80, 97, 105, 130
Google, 91
government institutions
loss of confidence in, 158-162
as necessary condition for properly functioning markets, 160
purchase of stakes in troubled banks, 181
Graham, Ben, 187
Grant, James, 35-37
The Great Crash 1929 (Galbraith), 158
Great Moderation, 121-122
Greenspan, Alan, xviii, 65, 69, 87-88, 93, 133
H
hedge funds, 83-89
defined, 84
leverage, 85
LTCM (Long-Term Capital Management), 83-89, 153
market-neutral hedge funds, 129-131
short selling, 84
structure of, 84
Hickman, Walter Braddock, 51
High-Grade Structured Credit Strategies Enhanced Leverage fund, 127-129
history of stock market, xvi-xxii
Hungary
carry trade, 59
emerging market in, 46
I
index funds
bell curve distribution of market returns, 19
commodities, 104-111
development of, 16
disadvantages of, 20-22
as force for inefficiency, 21
MSCI emerging markets index, 44
“random walk,” 17-18
risk management, 18
institutionalization of U.S. stock market, 9-15
insurance, deposit insurance, 140
International Swaps and Derivatives Association, 114
investment bubbles
formation of new bubbles, 186-193
history of, 3-4
in Japan, 56-59
investment, institutionalization of, 9-15
irrational exuberance, 69-74
J
Japan
investment bubble and crash, 56-59
yen carry trade, 60-61
Johnson, Lyndon, 50
junk bonds, 48-54
K
Kapuscinski, Ryszard, 171
Kaufman, Henry, 81
Keynes, John Maynard, 194
KIKO (Knock-In, Knock-Out), 172
Kindleberger, Charles P., 179
Kondratieff, Nikolai, 108
L
Lamont, Norman, 62-63
LDCs (Lesser Developed Countries) model, 40
Lee, Jamie, 189
legislation
ERISA (Employee Retirement Income Savings Act), 20
Glass-Steagall Act, 77
Lesser Developed Countries (LDCs) model, 40
leverage, 85
Levitt, Arthur, 71-73
LIBOR (London Inter-Bank Offer Rate), 135
Lieberman, Joseph, 106
London Inter-Bank Offer Rate (LIBOR), 135
long/short hedge funds, 129-131
LTCM (Long-Term Capital Management), xix, 83-89, 153
Lula da Silva, Luiz Inácio, 98
M
Magellan Fund (Fidelity), xvi, 11-13
Mandelbrot, Benoit, 20-21
market recovery, 179-184
market resurgence of 2009, 186-193
market-neutral hedge funds, 129-131
Markit ABX index, 116
McCain, John, 159
Melcher, Jim, 14
Meriwether, John, 85
Merkel, Angela, 161
Merton, Robert, 85
Mexico
devaluation of currency in 1982, 40-42
Tequila Crisis, 65-67
Minsky, Hyman P., 120-122
Mississippi Bubble (France), 3
money market funds
The Community Bankers U.S. Government Money-Market Fund, 29
explained, 25
growth of, 27
impact on banks, 26-30
The Reserve Fund, 26
Moody’s, 80
moral hazard, 6, 78, 134, 183, 196
Morgan Stanley Capital International emerging markets index, 44
Morgan, JP, 133
Morningstar, 12
mortgages
CDOs (collateralized debt obligations), 115, 128-129
securitized mortgages, 48-51
subprime mortgages, 116
MSCI World market index, 44
N
NASDAQ crash of 2000, 90-96
NationsBank, 77
negative feedback loop. See reflexive markets
Nikkei 225, 56
Nixon, Richard, 34
Northern Rock, 139-140
O
O’Neill, Jim, 97-98
Obama, Barack, 159
oil
negative correlation between oil and share prices, 108
Peak Oil theory, 107
price spike of 2008, 146-149
shift from gold standard to oil standard, 35-38
OPEC oil price hike of October 1973, 35
P
Paine Webber, 78
Pandit, Vikdram, 179
Paulson, Henry, 158
Peak Oil theory, 107
Peston, Robert, 139
Petajisto, Antti, 22
pi Economics, 189
Poole, Bill, 134
Portillo, José López, 40-42
PPIP (Public-Private Investment Program), 182
Prince, Chuck, 124
principal/agent splits, 5
private equity funds, 117
Public-Private Investment Program (PPIP), 182
Puche, Jaime Serra, 66
Q–R
quantitative easing, 182
quantitative equity funds, 127-132
“random walk” (index funds), 17-18
rating agencies, 80
Ready Assets money market fund (Merrill Lynch), 25
Reagan, Ronald, xvii
Reed, John, 76
reflexive markets, 145-151
reforms
banking reforms, 196-197
diversification by risk, 200
moral hazard, 196
reforming compensation system for fund managers, 198-199
Reid, Jim, 115
risk management
diversification
by asset classes, 163-166
index investing, 18
RJR Nabisco, 52
Rogers, Jim, 104
Rouwenhoorst, Geert, 104
S
Scholes, Myron, 85
securitized mortgages, 48-51
short selling, 84
SIVs (structured investment vehicles), 141-142
Soros, George, 63, 145-146, 180
South Korea, 46
South Sea Bubble (England), 3
Standard & Poor’s, 80
Stewart, Jon, 163
stock market timeline, xvi-xxii
stock market, institutionalization of, 9-15
stress tests, 183
structured investment vehicles (SIVs), 141-142
subprime crisis, 7
subprime mortgages, 116
Swiss Banking Corporation, 78
Swiss franc carry trade, 59
synchronization of world markets
2010 and after, 194-195
explained, 1-3
T
T-bills, 135-136
TALF (Term Asset-Backed Securities Loan Facility), 181
TARP (Troubled Assets Relief Plan), 158-160
TED spread, 135-137
Templeton, John, 40
Tequila Crisis (Mexico), 65-67
Term Asset-Backed Securities Loan Facility (TALF), 181
tesobonos, 66
theglobe.com, 90
timeline of stock market, xvi-xxii
“too big to fail” banks, 76-82
Travelers Group, 76
Trichet, Jean-Claude, 148
Troubled Assets Relief Plan (TARP), 158-160
trust
crisis of confidence in summer 2007, 135-138
need for, 133-134
Tulip Mania (Holland), 3
2009 market resurgence, 186-193
U
U.S. Securities and Exchange Commission, 71
United Kingdom, Black Wednesday, 62-64
V
Vanguard, 71
Viniar, David, 131
Vix Index, 121
volatility
effects of low volatility, 121-122
measuring, 121
rise with Shanghai Surprise, 120, 123-126
Volcker, Paul, 26, 37, 41, 65, 87, 121
W
Wall Street, 48
Weill, Sandy, 76-77
Whitney, Meredith, 142
Woolley, Paul, 15
world markets, synchronization of
2010 and after, 194-195
explained, 1-3
X–Y–Z
Xiaoping, Deng, 56
Y2K scare, 91
Zedillo, Ernesto, 65
zero-sum game, 64