DOCSLIB.ORG

A Tale of Two Derivatives Debacles in Prime-Time

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
A Tale of Two Derivatives Debacles in Prime-Time University of San Diego School of Law Law and Economics Research Paper No. 08 University of Pennsylvania Law School Institute For Law and Economics Research Paper No. 01-04 USC Law School Sponsored by the John M. Olin Foundation Research Paper No. 01-1 Derivatives on TV: A Tale of Two Derivatives Debacles in Prime-Time Peter H. Huang Kimberly D. Krawiec Frank Partnoy This paper can be downloaded without charge from the Social Science Research Network Electronic Paper Collection: http://papers.ssrn.com/paper.taf?abstract_id=259854 Derivatives on TV Derivatives on TV: A Tale of Two Derivatives Debacles in Prime-Time+ Peter H. Huang,* Kimberly D. Krawiec** and Frank Partnoy*** What do derivatives and television have in common? Most people think derivatives are complex,1 but view television as simple. Our view is the opposite: derivatives are relatively straightforward, but television is multifaceted.2 Because the average person’s knowledge of derivatives is more likely acquired through television or other popular media than through formal training, the depiction of derivatives on television is extraordinarily important. If a juror learns from television that derivatives cause large losses and provide few or no benefits, then her decision in a shareholders’ lawsuit alleging that management violated its fiduciary duty by buying (or not buying3) derivatives may be affected by that coverage. Similarly, if a voter or shareholder learns from television that derivatives solve any financial problem, then she is less likely to monitor derivative usage by her county treasury or by corporations in which she owns stock. During Congressional debates, several legislators and witnesses have cited media coverage of derivatives as support for proposed legislation restricting derivatives use. For example, Senator Edward J. Markey of Massachusetts cited the coverage of Nick Leeson by Newsweek and Fortune magazines in proposing an amendment to the Private Securities Litigation Reform Act of 1995 that would have rendered the Act inapplicable to derivatives transactions.4 In support of that amendment, Mr. Dingell of Michigan quoted “a particularly chilling moment” in a 60 Minutes “expose on” derivatives.5 Similarly, Senator Byron L. Dorgan, in introducing the Derivatives Limitations Act of 1995, cited general newspaper coverage and television reports on derivatives.6 He also cited media coverage of derivatives in proposing amendments to the Financial Services Modernization Act of 1999.7 Finally, Brooksley Born, the Chairperson of the Commodity Futures Trading Commission (CFTC), cited + We thank Hillary Sale for moderating the 2000 Law and Society panel on which this paper is based. Thanks also to Anita Famili and Princeton Kim, USC Law School Class of 2001, for excellent research assistance. * Assistant Professor, University of Pennsylvania Law School. ** Visiting Professor, UCLA Law School; Associate Professor, University of Oregon Law School. *** Associate Professor, University of San Diego Law School. 1 Derivatives are so named because their value is derived from or linked to some underlying asset, reference rate or index. 2 Peter H. Huang, Law and Economics in Xena, Warrior Princess, 2 Whoosh! (1996), available on-line at http://whoosh.org/issue2/huang.html (discussing implications for law and economics of a particular television show). 3 Although no cases hold there is a fiduciary duty to hedge using derivatives, some commentators interpret Brane v. Roth, 590 N.E.2d 587 (Ind. 1992), as doing so. This interpretation, however, is unwarranted. Kimberly D. Krawiec, Derivatives, Corporate Hedging, and Shareholder Wealth: Modigliani-Miller Forty Years Later, 1998, U. Ill. L. Rev. 1039, 1102-04 (1998); George Crawford, A Fiduciary Duty to Use Derivatives? 1 Stan. J.L. Bus. & Fin. 307, 329-30 (1995). 4 141 Cong. Rec. H2818-01 (Mar. 8, 1995), H2826. 5Id. at H2827. 6 Senator Dorgan stated that "[t]he term 'derivative' is not readily understood by most." 141 Cong. Rec. S3889-01 (Mar. 14, 1995), S3889. He also specifically cited a "Washington Post op-ed piece on derivatives called 'Lessons from Barings' in support of his proposed legislation.” 141 Cong. Rec. S3964-01 (Mar. 15, 1995), S3964. 7 Senator Dorgan cited a Wall Street Journal article on Long-Term Capital Management and the Fortune article titled “The Risk That Won’t Go Away, Financial Derivatives Tightening Their Grip on the World Economy, and No One Knows How to Control Them.” 145 Cong. Rec. S483-02 (May 6, 1999), S4840. 1 Derivatives on TV media coverage of derivatives during Congressional testimony.8 There is also evidence that media coverage shapes the views that other people have about derivatives.9 Derivatives went largely unnoticed by television until the Federal Reserve unexpectedly raised interest rates in 1994, causing significant losses and even several bankruptcies by derivatives investors who had made large, leveraged bets that interest rates would not rise. Since then, however, derivatives have so infiltrated popular media that today nearly everyone has some experience with derivatives on television. In this article, we focus our discussion solely on two television programs that covered highly publicized derivative debacles: the March 5, 1995, “60 Minutes” coverage of the bankruptcy of Orange County, California, and the February 8, 2000, NOVA coverage of the near-collapse of Long-Term Capital Management (LTCM). I. What Happened? Orange County and LTCM appear at opposite ends of the spectrum of recent derivatives losses. Orange County’s Treasury was a one-man show, and its now-infamous treasurer, Robert L. Citron, was a seventy-year-old college dropout. In contrast, LTCM was a slick, sophisticated hedge fund,10 led by John Meriwether, whose principals included two Nobel laureates and several “rocket scientists” recruited from the investment bank Salomon Brothers. Notwithstanding these differences, Orange County and LTCM had two things in common: each lost more than a billion dollars on derivatives and each shrouded the details of its operations in secrecy. A. Orange County Citron dominated the Orange County Treasury in the 1980s and 90s.11 He was one of the nation’s best-known municipal treasurers, primarily because his investment strategies produced a very high average return of 9.3%. Yet before 1995, the public was largely unaware of how Citron was generating such high returns. 8 Brooksley Born stated that “many of the regulatory issues identified in the concept release [issued by the CFTC about over-the-counter derivatives] became front-page news last September when a very large hedge fund, Long- Term Capital Management L.P., nearly defaulted on $1.25 trillion in notional value of exchange-traded and OTC derivative contracts." Testimony before the House of Representatives on the Impact of Technology on Banking 1999 WL 170220 (F.D.C.H.) (Mar. 25, 1999); Testimony before the House of Representatives on Technological Trends in the Futures Industry 1999 WL 191046 (F.D.C.H.) (Mar. 25, 1999); and Testimony before the House of Representatives on Reauthorization of the Commodity Futures Trading Commission 1999 WL 313983 (F.D.C.H.) (May 18, 1999). 9 "Bob Whaley, a finance professor at Duke University's Fuqua School of Business, changed the way he taught his derivatives course in 1995 -- after seeing a '60 Minutes' segment on derivatives. I was 'absolutely dumbfounded at the misrepresentations and mischaracterizations' about their supposed evils, he says. But after playing the video on the first day of class, he discovered that students bought into the news show's views. Now at the end of the course, he says, students are 'as dismayed as I was at the show's lack of knowledge about derivatives and derivatives markets.'" Stephen Barr, Incomplete Education, CFO Mag. for Senior Fin. Executives Apr. 1, 1997 30. The law students in one of our securities regulation courses had precisely the same reactions. 10 A hedge fund is an investment vehicle typically restricted to a small number of wealthy or sophisticated investors and established outside of the U.S. For example, although LTCM was a U.S.-registered limited partnership, its positions were held by a Cayman Islands entity and administered by a Dutch company. Nicholas Dunbar, Inventing Money: The Story of Long-Term Capital Management and the Legends Behind It 126 (2000). See also Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management (2000) (providing an unauthorized history of LTCM). 11 The details in this essay are drawn from Philippe Jorion, Big Bets Gone Bad: Derivatives and Bankruptcy in Orange County 7-18, 30-37, 47-51, 67-83 (1995) and Frank Partnoy, F.I.A.S.C.O.: Blood in the Water on Wall Street Ch. 8 (1997). 2 Derivatives on TV Citron’s strategies consisted primarily of large, leveraged bets that short-term interest rates would not increase. Citron borrowed about $13 billion from various securities firms through arrangements known as reverse repurchase agreements, using Orange County’s $7.4 billion investment pool as collateral. This gave him about $20 billion to invest. Citron used these funds to purchase short-maturity, highly-rated bonds, as Orange County’s investment regulations required. During the early 1990s, short-maturity, highly-rated bonds returned approximately 3%. How did Citron plan to increase his returns to above 9%? This is where derivatives entered the picture. Citron purchased a special type of bond, called a “structured note,” whose payouts were not fixed, but rather were based on one or more formulae. For example, Citron bought large amounts of “inverse floaters,” bonds whose value declines rapidly when interest rates increase. An inverse floater might pay 13% minus a multiple of a short-term floating rate. If the short-term rate remained at 3%, the structured note would pay 10%. But if the short-term rate increased, the payout would decline, and the more it declined the less the notes would be worth.
Load more

Recommended publications
  • Progress Report on the Role of Communication During the Lifetime of Long‐Term Capital Management
    Progress Report on the Role of Communication during the Lifetime of Long‐Term Capital Management Jessica Lo, Sophia Lu, Joseph Xi, Anthony Zhu (Red Team – 202) November 1, 2010 Introduction Long‐Term Capital Management (LTCM) was a hedge fund that was extremely successful in the early 1990s, but a series of unexpected events led to its abrupt downfall. While most commentary focuses on the technical aspects of LTCM, this report will examine the role of communication during the hedge fund’s lifetime. We will look at the ways in which LTCM’s internal and external communication with its clients and counterparties affected its success and failure. Specifically, we will analyze how LTCM’s communication practices changed over time in response to the changing financial environment. During the rise of LTCM, not only was there limited communication between LTCM’s traders, but LTCM was also unwilling to disclose much information to its investors. However, during the downfall of LTCM, LTCM had to reveal its positions and trades to the public in an attempt to raise capital and to save the fund from failing. It should be noted that the purpose of this report is not solely to attribute LTCM’s downfall to flaws in its communication practices. Instead, this report aims to identify communicative events, such as lack of communication and excessive communication, which contributed to LTCM’s downfall. In studying LTCM and its communication practices, we read and analyzed a variety of documents that offer differing perspectives on both the technical and social aspects of LTCM. We categorized the documents we read as either a primary document or secondary document, and provided a brief synopsis of each document.
    [Show full text]
  • Examination of Var After Long Term Capital Management
    View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by Munich RePEc Personal Archive MPRA Munich Personal RePEc Archive Examination of VaR after long term capital management Hakan Yalincak and Yu Li and Mike Tong New York University 2. May 2005 Online at https://mpra.ub.uni-muenchen.de/40152/ MPRA Paper No. 40152, posted 18. July 2012 21:04 UTC _______________________________________________________ Examination of VaR After Long Term Capital Management by Hakan Yalincak, Yu Li and Mike Tong* New York University Risk Management In Financial Institutions (Spring 2005) __________________________________________________________________ Abstract The 1998 failure of Long-Term Capital Management (‘LTCM’), a very large and prominent Greenwich, Connecticut based hedge fund, is said to have nearly brought down the world financial system. Over the years, few financial debacles such as LTCM, have been so often written about or discussed without a firm conclusion on what went wrong. What brought the “genius” managers of LTCM to their knees? Was it hubris, or was it something more? Various commentators have jumped on LTCM’s significant leverage ratio or engaged in second-guessing of management’s decision in 1997 to return $2.7 billion of investor capital to increase leverage, and thereby, returns. Others have faulted the lack of transparency at LTCM or faulted regulators for a lack of oversight, criticized regulators for arranging the bailout, while others still have pinpointed the debacle on the failure of LTCM’s risk management prowess. This paper avoids the blame and identifies the multiple factors, both management risk management blunders, as well as inherent flaws in the risk metric used by LTCM – Value at Risk (VaR) – a commonly used risk metric in the financial industry today.
    [Show full text]
  • Securities Transaction Tax Introduced in the House of Representatives
    Edited by Charles E. Dropkin December 8, 2009 in this issue Economic Crisis Securities Transaction Tax Introduced in the House of Response Group Representatives Securities Transaction On December 3, a group of 23 representatives introduced a bill to tax various types of Tax Introduced in securities transactions. If enacted, the legislation would impose a transaction tax on the the House of following types of securities: Representatives ....... 1 Federal Reserve Board n Shares of common and preferred stock (25 basis points), Adopts Final Rule to n Determine Eligibility of Futures contracts (2 basis points), Credit Rating Agencies n Swap agreements (2 basis points), to Issue Credit Ratings on TALF Loans ........ 1 n Credit default swaps (2 basis points), and House Financial n Option contracts (taxed at the rate of the underlying asset). Services Committee Passes New Financial The transaction tax would apply to securities transactions in excess of $100,000 and Legislation ................ 2 would exempt certain types of accounts. The Senate is expected to propose a similar bill Congressional next week. The Obama administration has not stated whether it will support the bill; Committees Hold however, Treasury Secretary Geithner previously has expressed concern that such a tax Hearings on Regulation would adversely affect financial markets by increasing the costs of capital and affecting of OTC Derivatives .. 2 the ability of U.S. companies to compete in international markets. Federal Reserve Board Resumes Operation of Reverse Repurchase Federal Reserve Board Adopts Final Rule to Determine Agreements.............. 3 Eligibility of Credit Rating Agencies to Issue Credit Ratings on TALF Loans On December 4, the Federal Reserve Board announced the adoption of a final rule to determine the eligibility of credit rating agencies to issue credit ratings on certain types of asset­backed securities (“ABS”) to be accepted as collateral for the Term Asset­Backed Securities Loan Facility (“TALF”).
    [Show full text]
  • California's Angelides to Lead Financial Crisis Probe
    California’s Angelides to Lead Financial Crisis Probe Bloomberg By Jesse Westbrook and James Rowley July 15, 2009 July 15 (Bloomberg) -- Former California Treasurer Philip Angelides will lead a panel charged by Congress with investigating causes of the financial crisis following public anger at the $700 billion taxpayer rescue of Wall Street banks. House Speaker Nancy Pelosi and Senate Democratic Leader Harry Reid today announced the appointment of Angelides, 56, who lost to Republican Arnold Schwarzenegger in the 2006 California gubernatorial race. House and Senate Republicans named former U.S. Representative Bill Thomas as the panel’s vice chairman. “The commission will conduct a thorough, systemic and non- partisan examination of the failures in both government and financial markets,” Pelosi, a California Democrat, said in a statement. “The American people deserve nothing less than a full explanation of why so many people lost their homes, their life’s savings and their hard-earned pensions.” The panel, with six members appointed by Democrats and four by Republicans, has subpoena power and may identify firms and individuals judged responsible for contributing to the deepest recession since the Great Depression. Congress modeled the commission on a 1930s panel headed by Senate staff member Ferdinand Pecora that led to the creation of agencies and laws that policed financial firms for seven decades. Since September, the government has been forced to prop up firms including Citigroup Inc., Bank of America Corp., American International Group Inc., General Motors Corp. and housing finance companies Fannie Mae and Freddie Mac. Brooksley Born Democratic leaders also appointed Brooksley Born, former chairman of the Commodity Futures Trading Commission; former U.S.
    [Show full text]
  • Second Draft
    Second Draft Risk, Financial Crises, and Globalization: Long-Term Capital Management and the Sociology of Arbitrage Donald MacKenzie March, 2002 Author’s address: School of Social and Political Studies University of Edinburgh Adam Ferguson Building George Square Edinburgh EH8 9LL Scotland [email protected] Word counts: main text, 16,883 words; notes, 1,657 words; appendix, 142 words; references, 1,400 words. Risk, Financial Crises, and Globalization: Long-Term Capital Management and the Sociology of Arbitrage Abstract Arbitrage is a key process in the practice of financial markets and in their theoretical depiction: it allows markets to be posited as efficient without all investors being assumed to be rational. This article explores the sociology of arbitrage by means of an examination of the arbitrageurs, Long-Term Capital Management (LTCM). It describes LTCM’s roots in the investment bank, Salomon Brothers, and how LTCM conducted arbitrage. LTCM’s 1998 crisis is analyzed using both qualitative, interview-based, data and quantitative examination of price movements. It is suggested that the roots of the crisis lay in an unstable pattern of imitation that had developed in the markets within which LTCM operated. As the resultant “superportfolio” began to unravel, arbitrageurs other than LTCM fled the market, even as arbitrage opportunities became more attractive. The episode reveals limits on the capacity of arbitrage to close price discrepancies; it suggests that processes of imitation can involve professional as well as lay traders; and it lends empirical plausibility to the conjecture that imitation may cause the distinctive “fat tails” of the probability distributions of price changes in the financial markets.
    [Show full text]
  • Brooksley Born, Esq
    BROOKSLEY ELIZABETH BORN Retired Partner Arnold & Porter Kaye Scholer LLP TEL: (202) 942-5832 601 Massachusetts Avenue, N.W. [email protected] Washington, D.C. 20001-3743 Home: 2319 Tracy Place, N.W. TEL: (202) 462-3676 Washington, D.C. 20008 Born: San Francisco, California August 27, 1940 Education: San Francisco public schools; A.B. Stanford University 1961 (major: English Literature); J.D. Stanford Law School 1964. Academic Honors, Awards, Etc.: Justice Thurgood Marshall Award, District of Columbia Bar, 2014; Philip Hart Public Service Award, Consumer Federation of America, 2012; Money Hero, Money Magazine, 2012; Lifetime Achievement Award, Euromoney, 2012; Special Achievement Award, National Association of Personal Financial Advisors, 2012; Robert F. Drinan Award for Distinguished Service, American Bar Association Section of Individual Rights and Responsibilities, 2012; Public Service Award, National Association of Women Lawyers, 2011; Servant of Justice Award, Legal Aid Society of the District of Columbia, 2011; Intelligence and Courage Award, Frances Perkins Center, 2010; Margaret Brent Women Lawyers of Achievement Award, American Bar Association Commission on Women in the Profession, 2010; Outstanding Service Award, Fellows of the American Bar Foundation, 2010; Breaking Down Barriers Award, National Women’s Law Center, 2009; Pioneer of the Bar, Washington’s Top Lawyers, Washingtonian, 2009; Profile in Courage Award, John F. Kennedy Library Foundation, 2009; Champion, Legal Times, 2008; Lifetime Achievement Award, American
    [Show full text]
  • The Role of the US Commodity Futures Trading Commission
    Northwestern Journal of International Law & Business Volume 21 Issue 3 Spring Spring 2001 International Regulatory Responses to Derivative Crises: The Role of the U.S. Commodity Futures Trading Commission Brooksley Born Follow this and additional works at: http://scholarlycommons.law.northwestern.edu/njilb Part of the Securities Law Commons Recommended Citation Brooksley Born, International Regulatory Responses to Derivative Crises: The Role of the U.S. Commodity Futures Trading Commission , 21 Nw. J. Int'l L. & Bus. 607 (2000-2001) This Article is brought to you for free and open access by Northwestern University School of Law Scholarly Commons. It has been accepted for inclusion in Northwestern Journal of International Law & Business by an authorized administrator of Northwestern University School of Law Scholarly Commons. International Regulatory Responses to Derivatives Crises: The Role of the U.S. Commodity Futures Trading Commission by Brooksley Born* Over the past decade, as derivatives markets - and particularly the over-the-counter ("OTC") market - have become increasingly global in na- ture, the U.S.. Commodity Futures Trading Commission ("CFTC") - the federal regulatory agency that oversees futures and commodity option trad- ing' - has played an active role in fostering international regulatory coop- eration. The technology of the information age, allowing instant communication and electronic trading, has revolutionized financial markets, instituting around-the-clock, around-the-globe trading, globally active mar- ket users and market intermediaries, and an increasing pace of market inno- vation. Market crises now have the potential for widespread financial impact and require international regulatory response. The 1997-1998 Asian finan- cial crisis that caused equity and currency markets to tremble demonstrated more vividly than ever before that world markets are inextricably linked through related products and common market participants.
    [Show full text]
  • Brooksley E. Born
    National Equal Justice Library Oral History Collection Interview with Brooksley E. Born Conducted by Alan Houseman June 22, 2015 Call number: NEJL-009 Transcribed by: Courtney N. Langhoff, RPR, CRR, on behalf of the NCRF National Equal Justice Library Georgetown University Law Library 111 G Street NW Washington, DC 20001 Tel: (202) 662-4043 Transcripts are protected by copyright and permission to publish must be obtained from NEJL at Georgetown University Law Library. Please contact the NEJL for more information. I N T E R V I E W ALAN HOUSEMAN: This is an oral history of Brooksley Born, who is a retired partner at Arnold & Porter and, as we will see, a leader in the American Bar Association and in a number of other arenas. The interviewer is Alan Houseman for the National Equal Justice Library. Brooksley, let's start with a little bit of your background, and then we'll quickly do a sort of brief resume, and then we'll come back and focus on those areas that directly relate or indirectly relate to legal aid and indigent criminal defense. So what is your background? Where did you grow up? Where did you go to college and law school? BROOKSLEY BORN: Well, I was born and grew up in San Francisco, went to public high school there, and then went to Stanford as an undergraduate and Stanford Law School. When I graduated from Stanford Law School, I came to Washington to clerk for Henry W. Edgerton, who was a judge on the D.C. Circuit. And after a year's clerkship, I came to work for Arnold & Porter, where I have spent most of my career since that time, with a three-year break in the mid '90s to chair the Commodity Futures Trading Commission, which is a 1 federal independent regulatory agency governing derivatives.
    [Show full text]
  • Hedge Funds and the Collapse of Long-Term Capital Management Author(S): Franklin R
    American Economic Association Hedge Funds and the Collapse of Long-Term Capital Management Author(s): Franklin R. Edwards Source: The Journal of Economic Perspectives, Vol. 13, No. 2 (Spring, 1999), pp. 189-210 Published by: American Economic Association Stable URL: http://www.jstor.org/stable/2647125 . Accessed: 21/01/2011 03:46 Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp. JSTOR's Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at . http://www.jstor.org/action/showPublisher?publisherCode=aea. Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission. JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact [email protected]. American Economic Association is collaborating with JSTOR to digitize, preserve and extend access to The Journal of Economic Perspectives. http://www.jstor.org Journal of EconomicPerspectives-Volume 13, Number2-Spring 1999-Pages 189-210 Hedge Funds and the Collapse of Long- Term Capital Management Franklin R.
    [Show full text]
  • In 1994, John Meriwether, the Famed Salomon Brothers Bond Trader, Founded a Hedge Fund Called Long-Term Capital Management
    In 1994, John Meriwether, the famed Salomon Brothers bond trader, founded a hedge fund called Long-Term Capital Management. Meriwether assembled an all-star team of traders and academics in an attempt to create a fund that would profit from the combination of the academics' quantitative models and the traders' market judgement and execution capabilities. Sophisticated investors, including many large investment banks, flocked to the fund, investing $1.3 billion at inception. But four years later, at the end of September 1998, the fund had lost substantial amounts of the investors' equity capital and was teetering on the brink of default. To avoid the threat of a systemic crisis in the world financial system, the Federal Reserve orchestrated a $3.5 billion rescue package from leading U.S. investment and commercial banks. In exchange the participants received 90% of LTCM's equity. The lessons to be learned from this crisis are: Market values matter for leveraged portfolios; Liquidity itself is a risk factor; Models must be stress-tested and combined with judgement; and Financial institutions should aggregate exposures to common risk factors. LTCM seemed destined for success. After all, it had John Meriwether, the famed bond trader from Salomon Brothers, at its helm. Also on board were Nobel-prize winning economists Myron Scholes and Robert Merton, as well as David Mullins, a former vice-chairman of the Federal Reserve Board who had quit his job to become a partner at LTCM. These credentials convinced 80 founding investors to pony up the minimum investment of $10 million apiece, including Bear Sterns President James Cayne and his deputy.
    [Show full text]
  • The Profit Doctrine
    The Profit Doctrine The Profit Doctrine Economists of the Neoliberal Era Robert Chernomas and Ian Hudson First published 2017 by Pluto Press 345 Archway Road, London N6 5AA www.plutobooks.com Copyright © Robert Chernomas and Ian Hudson 2017 The right of Robert Chernomas and Ian Hudson to be identified as the authors of this work has been asserted by them in accordance with the Copyright, Designs and Patents Act 1988. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN 978 0 7453 3586 5 Hardback ISBN 978 0 7453 3585 8 Paperback ISBN 978 1 7837 1993 8 PDF eBook ISBN 978 1 7837 1995 2 Kindle eBook ISBN 978 1 7837 1994 5 EPUB eBook This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental standards of the country of origin. Typeset by Stanford DTP Services, Northampton, England Simultaneously printed in the United Kingdom and United States of America To Anwar Shaikh and the late David M. Gordon for cultivating my appreciation for theory in historical context. RC To Lisa Johnston. For everything. IH Contents List of Boxes, Figures and Tables viii List of Abbreviations ix Acknowledgements xi 1 Prophets and Profits 1 2 The Contest of Economic Ideas: Survival of the Richest 12 3 The Consequences of Economic Ideas 35 4 Milton Friedman: The Godfather of the Age of Instability and Inequality 55 5 The Deregulationists: Public Choice and
    [Show full text]
  • Transparency in Financial and Investment Advice
    Transparency in Financial Advice: Essential, Insufficient … in the Dark Ages The Transparency Symposium September 28, 2017 Knut A. Rostad, Founder and President Institute for the Fiduciary Standard www.thefiduciaryinstitute.org Transparency: Essential and Insufficient in Financial Advice • The Institute for the Fiduciary Standard mission and background 2011—2017 • Battle over meaning of advice; ‘Houston, we have a problem’ • Best Practices: More Transparency, Clarity, ‘Must Do’s’ 2 Institute for the Fiduciary Standard • Institute for the Fiduciary Standard formed in 2011, a non profit, to advance fiduciary principles in investment and financial advice through research, advocacy and education • Papers, conferences, webinars, Fiduciary September • Best Practices for Financial Advisors, Campaign for Investors • Voices: leading scholars, regulators, advocates, practitioners 3 John C. Bogle Arthur Levitt The Vanguard Group SEC Chairman 1993-2001 Paul Volcker Federal Reserve Chairman 1979-87 4 Luis Aguilar Sheila Bair SEC Commissioner (2008-15) FDIC Chair (2006-11) Alan Blinder Phyllis Borzi Economist and Professor at Assistant Secretary for Princeton University Employee Benefits Security at the DOL (2009-17) 5 Tamar Frankel Brooksley Born Professor of Law at Chair of the US Commodity Boston University Futures Trading Commission (1996-99) Barbara Roper Director of Investor Protection at CFA 2017 Frankel Fiduciary Prize Honoree 6 Battle Over Meaning of Advice Industry View: ‘We are all salespersons, now’* • Antithetical to history, law, logic
    [Show full text]