The 2007-08 financial crisis surprised many economists and the public. But how did the crisis come about, why was it so deep, and why has the clean-up been so slow and painful? Many accounts of the crisis focus on renegade activity in marginal financial sectors. Shadow Networks challenges this pervading view and sets out to demonstrate that, far from a dissident branch, the shadow finance that initiated the crisis is tightly networked with, and highly profitable for, bank-based finance. The collapse was not an accident, but baked into the system of finance from the start. Shadow Networks traces the complex web of power that caused crisis and gives vivid descriptions of the actors in the quarter century leading up to 2007 to explain how the now decade-long crisis took shape. Shadow Networks: Financial Disorder and the System that Caused Crisis is a probing examination of the roles of the powerful elite. It traces the networks and institutions that support a finance-focused, market centered model of economy and society from their ascendancy to their surprising resilience in the face of manifest failures.
Author(s): Francisco Louçã, Michael Ash
Publisher: Oxford University Press
Year: 2018
Language: English
Pages: 414
Tags: Financial Disorder, Financial Crisis
Cover......Page 1
Shadow Networks: Financial Disorder and the System that Caused Crisis......Page 4
Copyright......Page 5
Dedication......Page 6
Acknowledgments......Page 8
Contents......Page 10
List of Figures and Tables......Page 12
Introduction......Page 14
DO IDEAS MOVE THE WORLD?......Page 15
A TIME OF LIVING DANGEROUSLY......Page 17
THE INTERPRETERS OF THE SHADOW ECONOMY......Page 20
FEATURES OF THE SHADOW INTELLECTUAL MOVEMENT......Page 21
SHADOW BANKING IS BANKING......Page 22
CAPITALISM AND FINANCE......Page 23
RADICAL UNCERTAINTY......Page 24
SHADOWS EVERYWHERE......Page 25
THE PLAN OF THE BOOK......Page 26
Part I: TheWorld of Shadow Finance......Page 28
GREED MAKES THE WORLD GO ROUND......Page 30
GREED AND MARKETS......Page 33
KINDNESS AS A SOCIAL FABRIC......Page 34
“GREED IS GOOD”......Page 35
ECONOMICS FEARING GREED......Page 37
GREED IN THE LABORATORY......Page 38
THE MISER AND THE SPENDTHRIFT......Page 40
CONCLUSION......Page 42
2: Shadows in Times of Crash......Page 43
THE CRASH, AS SOME SOLID THINGS MELT INTO AIR......Page 44
A TSUNAMI......Page 45
MODERATION EVERYWHERE......Page 48
IT WAS ANNOUNCED......Page 50
GIVE ME A LEVER AND I WILL MOVE THE WORLD......Page 52
THE NEW MACHINES CREATING DEBT......Page 54
SHADOW BANKING IN THE 2007–8 FINANCIAL CRISIS......Page 57
A BANKING AND POLICY-INDUCED CRISIS IN EUROPE......Page 60
CONCLUSION......Page 62
THE INFORMAL SECTOR: SHADOWS IN A DARK CORNER......Page 64
THE RISE OF SHADOW BANKING......Page 66
BULL FIRMS FOR BULL MARKETS......Page 69
SHADOW BANKING IN THE MAKING......Page 70
VALUES AND THEIR DERIVATIVES......Page 73
UNSTABLE CONNECTIONS......Page 74
CONCLUSION......Page 76
When the Future was so Bright......Page 78
Credit Intermediation: Leaving the Banks in the Shadows......Page 79
Financial Companies......Page 81
Money Market Mutual Funds......Page 83
Institutional Cash Pools......Page 84
Investment Banks......Page 85
Market-based Credit IntermediationMechanisms......Page 86
Securitization......Page 87
Commercial Paper and Asset-backed Commercial Paper......Page 89
Repurchase Agreements......Page 90
Conclusion......Page 91
Part II: Who Decides? Deregulation and Deregulators......Page 94
THE TOP AND THE BOTTOM......Page 96
FAMILY BUSINESS......Page 98
DYNASTIES......Page 99
PYRAMID ORGANIZATION......Page 102
THE POWER OF THE RIGHT CONNECTIONS......Page 105
SOCIAL POWER......Page 109
THE WORLD’S CORPORATE ELITE......Page 110
CONCENTRATION, ACQUISITIONS, AND MERGERS......Page 112
BIG BUSINESS......Page 113
GIANTS IN THE SHADOWS......Page 114
CONCLUSION......Page 115
EVERYONE SO WRONG......Page 117
“DADDY, WHY IS EVERYONE SO SURPRISED?”......Page 119
FROM HAYEK TO FRIEDMAN: THE MONT PELERIN SOCIETY......Page 120
LIBERALIZERS…......Page 123
…AND THEIR CLUBS......Page 124
RADICAL MONEY FOR A RADICAL RIGHT WING......Page 125
ETERNAL JOY......Page 127
FAMA AND THE NEW CRUSADE FROM CHICAGO......Page 128
DEREGULATION AND THE PINTO CASE......Page 132
ENTER TRUMP......Page 133
CONCLUSION......Page 134
NOT SO MODERATE......Page 135
SHOCKED AS I AM......Page 136
A LONG ROAD TO DEREGULATE......Page 140
A FIGHT FOR REGULATION......Page 142
A SMALL CHANGE TO KEEP ON GOING......Page 145
THE VIRTUE OF IGNORANCE......Page 146
THE VIRTUE OF INDEPENDENCE......Page 147
INDEPENDENCE EVERYWHERE......Page 150
THE SOCIAL LOGIC OF CENTRAL BANK INDEPENDENCE......Page 151
QUARRELS AT THE HEADQUARTERS......Page 153
MULTIPLIERS AND DIVIDERS......Page 156
CONCLUSION......Page 158
True Believers......Page 160
Low Inflation......Page 162
International Capital Mobility......Page 164
Distrust of Social Insurance......Page 166
Deposit Insurance......Page 168
Balanced Budgets, Austerity, and Debt Reduction......Page 169
Privatization......Page 170
Reluctant Skepticism from the Belly of the Beast......Page 171
Larry Summers......Page 172
Robert Shiller......Page 173
Adam Smith......Page 175
John Maynard Keynes......Page 176
Hyman Minsky......Page 177
James Crotty and Other Critics......Page 179
Conclusion......Page 180
Part III: Plutocracy and Oligarchy......Page 182
7: Consensus by Schooling and Power: The Indoctrination of the Elites......Page 184
US DOMINANCE......Page 186
THE US INTERNAL POLITICAL CONVERGENCE OF OLIGARCHIC PARTIES......Page 190
AMERICANIZATION THROUGH EDUCATION AND POLITICAL CONVERGENCE......Page 192
THE CHICAGO CONNECTION......Page 194
SKIRMISHES FROM WASHINGTON TO CHICAGO......Page 195
THE BATTLEFIELD OF LATIN AMERICA......Page 197
The Case of Chile......Page 198
The case of Argentina......Page 201
The Case of Mexico......Page 203
The Network of Good Economics......Page 206
The Case of Brazil......Page 208
EUROPE AND THE FINANCIAL LOBBIES......Page 209
THE CASE OF BRITAIN AND THE POWER OF THE CITY......Page 210
THE CASES OF FRANCE AND GERMANY......Page 212
SPAIN, A CASE OF EMBEDDED NEOLIBERALISM......Page 214
THE CASE OF PORTUGAL AND THE STRATEGY OF AUSTERITY......Page 216
CONCLUSION......Page 219
8: The Revolving Door......Page 221
DOORS EVERYWHERE......Page 222
Three Hypotheses: Internationalization, Economization, and Financialization......Page 224
Data......Page 228
The Center and Center-left Governments......Page 229
The Revolving Door—the Portuguese Case......Page 235
CRONYISM......Page 237
Capture of Regulation......Page 238
Crony Capitalism: Goldman Sachs and Carlyle......Page 239
Central Banks and the Selection of Senior Staff......Page 243
CHANGING TIDES......Page 244
A Case Study on Cronyism: Lawrence Summers......Page 245
Case Studies on Networking: Geithner and Rubin......Page 246
Cronyism at its Apex: Trump......Page 250
Cases Studies on Promotion: John Major and Tony Blair......Page 251
A Case Study on Bridging from Institutions to Business: Dominique Strauss-Kahn......Page 252
CONCLUSION......Page 253
Part IV: TheWeb of Power......Page 256
AGAIN AND AGAIN......Page 258
IF YOU AIN’T CHEATING, YOU AIN’T TRYING......Page 262
SWINDLES AS A WAY OF BUSINESS......Page 264
THE LIBOR CONNECTION......Page 268
OFFSHORING CAPITAL......Page 269
THE SWISS PARADISE......Page 271
IF YOU’RE SMART, WHY AIN’T YOU RICH?......Page 273
THE THREE SISTERS......Page 274
GOLDMAN SACHS, SO CLOSE TO GOD......Page 277
CONCLUSION......Page 279
THE TRADITION OF CAPITAL CONTROLS......Page 280
THE CASE FOR FREE CIRCULATION OF CAPITAL......Page 282
STORMS INSIDE THE IMF......Page 284
PROTECTION EVERYWHERE......Page 288
CONCLUSION......Page 290
What is Regulation About?......Page 292
US and the Case of AIG......Page 293
Europe Before and During the Crash......Page 294
European Deregulation......Page 296
The First Basel Concerts......Page 297
After the Crash, a NewWave of Regulations......Page 299
Changes in the US Regulation: Dodd-Frank and Volcker Rules......Page 300
After Dodd-Frank, the US Imbroglio......Page 302
Basel III and the Future of Regulation......Page 303
Auditors and the Virtue of Silence......Page 305
Conclusion......Page 306
Part V: The World We Live In......Page 308
11: A Long Stagnation, or Capitalism without Growth......Page 310
THE DOOMSAYERS......Page 311
THE UNDERCONSUMPTIONISTS......Page 312
DOOM AGAIN?......Page 313
FROM GREAT MODERATION TO GREAT DANGER......Page 315
INNOVATION TO SOLVE THE CONUNDRUM......Page 317
FINANCIAL BUBBLES, DEBT, AND…......Page 318
…ITS PERILS......Page 320
CHANGING A CHANGING WORLD, OR CAPITALISM WITHOUT GROWTH?......Page 322
MELTDOWN?......Page 324
AND THEN ENTERS TRUMP......Page 325
CONCLUSION......Page 326
CHINA, A FORERUNNER OF (STATE) NEOLIBERALISM......Page 328
CHINA AS THE LARGEST WORLD ECONOMY......Page 329
THE STATE AND THE MARKET IN THE ECONOMY......Page 331
ADVENTURES AND PERILOUS ESCAPES......Page 332
THE FINANCIAL AND BANKING SYSTEM......Page 334
AN INTERNATIONAL PLAYER......Page 336
THE SOCIAL CONSEQUENCES......Page 337
CORRUPTION......Page 339
CONCLUSION......Page 340
THE CONSTRUCTION OF INEQUALITY......Page 342
THE INTERCONNECTEDNESS OF THE SHADOWS......Page 344
IRRATIONAL OR RATIONAL SPECULATION?......Page 346
THE ERA OF GLOBAL CAPITAL......Page 348
RENTIERS AND CONCENTRATION......Page 350
KNOWN AND UNKNOWN, SHADOW AND LIGHT......Page 351
REMEDIES THAT DO NOT CURE......Page 353
PROFESSIONALISM AND DEMOCRACY......Page 354
CONCLUSION: WHAT CAN BE DONE?......Page 357
Bibliography......Page 360
Index......Page 398
